Rosenberg financial missionaries to the world (1999)

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Printed in the United States of America Library of Congress Cataloging-in-Publication Data

Rosenberg, Emily’S., 1944-

Financial missionaries to the world : the politics and culture of dollar diplomacy, 1900-1930 / Emily S Rosenberg

CHỊ,

Includes bibliographical references and index ISBN 0-674-00059-5 (alk paper)

1 United States—Foreign economic relations—20th century 2 United States—Economic policy—To 1933 3 International finance—History—20th century 1 Title

HF1455.R615 1999

337.73—dc21 99-22995

CIP

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Preface

Several years ago | began this investigation pursuing a primary interest in the political economy of lending and advising As 1 worked on the project, however, it expanded to include the much broader area of cultural discourses of which dollar diplomacy was a part While analyzing the changing political economy of international finance, I kept in mind Joan Scott’s challenge to “theorize the political.”! It became my goal to com-

bine political, economic, and cultural histories—with their distinctive

methodologies and epistemologies—in a single volume, and to broaden the parameters of what used to be narrowly called “diplomatic history.”

I have incurred many debts during the course of this project Grants from the National Endowment for the Humanities and the Social Science Research Council provided time for research I also want to acknowledge

that parts or versions of some of this material have been previously

published: “Foundations of United States International Financial Power: Gold Standard Diplomacy, 1900-1905,” Business History Review 59

(summer 1985): 169-202; “The Invisible Protectorate: The United

States, Liberia, and the Evolution of Neocolonialism, 1909-1940,” Diplo- matic History 9 (summer 1985): 191-214 (published by Blackwell);

“From Colonialism to Professionalism: The Public-Private Dynamic in United States Foreign Financial Advising, 1898-1929,” Journal of Ameri- can History 74 june 1987): 59-82 So many people—in libraries, ar-

chives, seminar, and conferences—have assisted me with research and

ideas that 1 cannot attempt to list them all Four readers of the manu-

script, however, deserve special mention for their careful and wise coun-

sel: Frank Costigliola, Melvyn Leffler, Thomas Paterson, and an anony-

mous reviewer Joyce Seltzer has provided expert editorial guidance, showing patience when needed, impatience when required, and a fine sense of style Thanks also go to Sharon Goudy, Joe Rosenberg, Molly

Rosenberg, and Tanya Snyder, who assisted with the manuscript, and to

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Anita Safran for her skilled copyediting Finally, and above all, this pro-

ject has been shaped in dialogue with Norman L Rosenberg Although he never wishes to hear the word “loan contract” again, this book would ¬" Contents not have existed without his inspiration, broad grasp of many literatures,

and editorial skills

Introduction 1898-1905

The Meanings of Money and Markets 5 Turning Silver Standards intoGold 12 The Commission on International Exchange 18 The New Specialists in International Financial Advising

Gender, Race, National Interest, and Civilization 31

The Dominican Model 41

- Development of Investment Banking 47 International Precedents for Fiscal Control 52 Fiscal Control through Public-Private Partnership 56

3 The Changing Forms of Controlled Loans under Taft and Wilson

Extending the Dominican Model 62 Control by Private Contract 71

Opposition to Tafts Dollar Diplomacy 77 Tightening Dollar Diplomacy under Wilson 79 Public-Private Interactions and Consenting Parties 93

4 Private Money, Public Policy, 1921-1923

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Xx Contents

Opposition to Financial Imperialism, 1919-1926

The Postwar Anti-imperialist Impulse 124

“Is America Imperialistic?” Conflicting Cultural Narratives Anti-imperialist Insurgency after 1924 137

The U.S Government Backs Away — 147 Stabilization Programs and Financial Missions in

New Guises, 1924-1928

Approaches to Stabilization 151

The Kemmerer Missions in South America 155 European Stabilization and the Dawes Plan 166

Poland: A Kemmerer Mission in Europe 176

Persia: The Millspaugh Mission 183

Faith in Professionalism, Fascination with Primitivism Professionalization and Financial Markets 187 Mass Culture and Primitivism 198

Dollar Diplomacy in Decline, 1927-1930

The Questionable Impact of Supervisory Missions 220 Opposition to U.S Supervision 230

Deterioration of the Bond Market and the End of Foreign Lending 240

Public Policy and the End of anEra 247

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“The policy has been characterized as substituting dollars for bullets It is one that appeals alike to idealistic humanitarian sentiments, to the

dictates of sound policy and strategy, and to legitimate commercial

aims The United States has been glad to encourage and support American bankers who were willing to lend a helping hand to the financial rehabilitation

President William Howard Taft, 1912

“An imperialism has stolen over us asa part of the materialistic spirit of the times The continuance of this dollar diplomacy, with its combination of bonds and battleships, means the destruction of our nation.”2

Samuel Guy Inman, 1924

Dollar diplomacy was a controversial U.S policy that attempted to

use private bank loans to leverage the acceptance of financial advisers by foreign governments that U.S officials and investors considered unstable The term covered a variety of meanings and processes Initiated by President Theodore Roosevelt, it flourished under President William

Howard Taft and then, in ever-changing forms, continued under his

successors

To both Taft and reformer Samuel Guy Inman, dollar diplomacy was

the product of modern, commercial civilization For Taft, it was the

cornerstone of a progressive foreign policy; it embodied a dream of rising living standards for all, boosted by ever-larger volumes of goods within a trading network greased by predictable financial infrastructures, encouraged by progressive government, and guided by experts who exemplified the business virtues of regularity and reliability But to Inman, writing just fifteen years later, dollar diplomacy meant imperialist domination and exploitation, fashioned by greedy bankers, financial experts who

acted as proconsuls, and sometimes Marines who would be dispatched to

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2 Financial Missionaries to the World

do the bidding of both It was a policy that would lead to moral decay and, ultimately, to the kind of militarism that would destroy democracy at home and abroad

During the first three decades of the twentieth century, the United

States emerged as a major economic power, and American investment

bankers came to play important roles in international lending.3 Govern- ments of countries that bankers perceived as stable and already incorporated into the world financial system could readily attract capital, and a large number of U.S private bank loans went to them during the first

three decades of the twentieth century—to Canada, Australia, most na-

tions in Western Europe, Japan, and some of the wealthier countries of Latin America But countries that were potentially unstable and unat- tractive to U.S investment bankers became the sites of dollar diplomacy—that is, the process of arranging loans in exchange for some kind of financial supervision

Dollar diplomacy involved cooperation among three groups in the

United States Private bankers would consider extending loans to foreign governments they considered risky; financial experts, formally or infor- mally connected to the loan process, would assume tasks of fiscal reorganization and administrative management in the borrowing country;

and governmental officials would orchestrate these “private sector” deals

(oans by bankers and supervision by economic experts) on behalf of what they considered to be the U.S national and international interest in

furthering global economic integration and strategic alliances The advisers were to try to introduce certain fiscal changes that they and their

sponsors promoted as “modern” and “scientific”: gold-standard currency

stabilization, central banking, strict accounting practices, and adminis-

trative rationalization

Despite the contemporary relevance of the practice of linking loans to

financial advice—a process that became enshrined in the International

Monetary Fund in the post-World War II period—there is no systematic historical account of the rise and fall of U.S loan-for-supervision arrangements before the Great Depression Although historians have in- tensively examined another related foreign policy process from the same era, that of the “open door,” the pursuit of financial advisory relation-

ships designed to create the economic infrastructure that would make

the open door possible has attracted little notice as an ongoing and

controversial policy process.‘

Introduction 3

This book analyzes the efforts by government, bankers, and experts to expand the scope of the global marketplace economy, to minimize the danger of default, and to secure integration of new and potentially risky areas into U.S economic and strategic systems These efforts raised sig-

nificant, and never resolved, dilemmas about the division of public and

private responsibilities At the same time, this study presents the arguments of those who opposed the process of accomplishing larger public goals through the agency of private bankers The controversies over the

role that private bank loans and advisers should play in shaping and carrying out foreign policy became central to debates, at home and abroad,

over America’s international role in the mid-1920s

Dollar diplomacy, however, signified more than relationships within the political economy and more than policy debates over public and private responsibilities It intertwined with cultural contexts that fostered the growth of professionalism, of scientific theories that accentu- ated racial and gender differences, and of the mass media’s emphasis on the attractions and repulsions of primitivism It was related to discourses of money, expertise, masculinity, and whiteness Taking place within the realm of high politics and finance, professional supervision accompanied a broader cultural fascination with primitivism; both professionalism and primitivism inscribed otherness and hierarchy ;

This history of dollar diplomacy bridges the subdisciplines of diplomatic, economic, and cultural history It presents a chronological narra- tive about the ways in which loans and advising connected to foreign policy during the first three decades of the twentieth century, But, along the way, it analyzes diverse subjects such as the symbolic meanings of money-lending; theories of contract law; the concept of cultural narra- tive; interpretations of efficiency in international exchange; discourses of

professionalism and primitivism; the roles of mass culture, race, and

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Gold-Standard Visions: International

Currency Reformers, 1898-1905

The turn of the century was a time of transformation in the United States: it experienced a bureaucratic revolution in state and corporate

structures; the rise of professionalism; a preoccupation with the “scien-

tific” categorization of knowledge; and the rapid growth of new tech- nologies and means of communications The nation asserted its military power and aggressively extended its trade and capital into the world These sweeping changes brought diverse reactions Many contemporar- ies called these changes “civilization” and believed that extending Amer- ica’s reach was both benevolent and inevitable Others were less hopeful.!

Within this context, U.S officials began to shape, for the first time, a

foreign financial policy They sought to stabilize and open new areas of the world’s economy to a growing volume of U.S trade and investment by spreading the gold standard Gold-standard diplomacy, the work of a cadre of economists who became America’s first generation of professional international financial advisers, would quickly broaden into the much larger agenda of “dollar diplomacy” and, during the 1920s, into programs to stabilize currencies and rationalize financial practices around the globe

The development of this foreign financial policy raised the same two

issues that dominated turn-of-the-century domestic politics: the ques-

tion of the appropriate monetary standard—gold versus bimetallism— and the controversy over whether the country should pursue a course of imperialism The monetary debate galvanized a group of economists

who fervently advocated the gold standard as a step toward greater ra-

tionalization of financial markets They joined with the like-minded ad-

4

ministrations of William McKinley and Theodore Roosevelt and with leading business groups to help pass the Gold Standard Act of 1900 and,

after the War of 1898, to advocate spreading the gold standard to new

colonies and dependencies As the government began to promote U.S

economic expansion internationally, this cadre began to work out plans

for currency reform and financial rehabilitation in the new U.S colonies and certain other silver-standard areas, and developed a missionary zeal for the broad benefits of their economic program

The policies devised and implemented by this first generation of experts in foreign currency reform sought to bring small nations in which the United States had an interest onto a gold-exchange standard, run by a central bank, with gold funds deposited in New York and coinage denominated on U.S money The goal behind spreading this Americanized gold-exchange standard was not only to simplify international transactions, thereby facilitating trade and investment, but to create a gold- backed dollar bloc, centered in New York, to rival the gold-backed pound sterling that dominated international trade America’s gold-standard di-

plomacy expressed the nation’s growing economic power; its increasing stake in maintaining an integrated, stable, and accessible international

order; and the government's desire to play a leading role in international currency matters Within the emerging profession of international economics, three men became especially influential: Charles Conant, Jere- miah Jenks, and Edwin Kemmerer Before examining the rise of this first generation of international financial advisers, an overview of divergent discourses about money and marketplaces that were shaping the politics of their era is in order

The Meanings of Money and Markets

Throughout the late nineteenth century, as monetary transactions came to occupy an ever more central place in society, debates over the consequences of markets and money-lending reverberated throughout Ameri- can life Georg Simmel’s The Philosophy of Money, published in German in 1900, provides a framework for considering the broader social meanings

of financial markets Simmel, like Marx half a century earlier, was con-

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growth of monetary exchange and its socio-psychological effects For Simmel, the use of money as a symbol of value brought both freedom and alienation It brought greater freedom because impersonal monetary exchange limited the demands of mutual obligations that individuals made on each other and facilitated the availability of a wider variety of commodities and choices But money also introduced a social and psychological distance that made people strangers and turned the focus of life upon it rather than on human relationships Monetary exchange

produced a “merciless objectivity” of lifestyle (what his student George

Lukac called “alienation”) To Simmel, socialism provided no way out of the impersonal webs that money had woven into modern life He also rejected Marx's historical materialism as too monocausal: “Every interpretation of an ideal structure by means of an economic structure must lead to the demand that the latter in turn be understood from more ideal depths and so on indefinitely.”?

By focusing centrally on monetary exchange and insisting on the seamlessness of economics and culture, Simmel sought to theorize the values of capitalism; the effects of monetary relationships on individual

cognition and emotion; the social, legal, and economic institutions that

accompany the growth of monetary exchange; the relationship of money

to social differentiation; its impact on freedom and status.3 His work suggests the diverse meanings of money and the need to situate dis-

courses of money within the context of particular ‘social and cultural debates Bankers are cultural symbols as well as economic actors; lending inscribes social status even as it sets forth economic promises to repay The meanings of money and markets are not stable, Simmel’s work suggests, and must be understood as rooted within the cultural as well as economic realin.+

In the United States at the turn of the twentieth century, two distinc-

tive discursive traditions about the social consequences of monetary exchange shaped political and cultural discussions: “antibanking discourses” and “professional-managerial discourses.” These two traditions competed for ascendancy by marshaling both institutional power and cultural representations Each discourse strove to assert its attendant meanings as reality, to preclude other points of view and action, and to project itself as self-evident and inherently natural.> Both had deep his-

toric roots

Antibanking discourses represented money as a force for greed, cor-

Gold-Standard Visions 7

ruption, and exploitation One strain of this critique had come through Aristotle into Christianity To Aristotle, production for household use and trade to facilitate such self-provision were natural and moral parts of human existence But commerce for pure profit had an unnatural character, and of all unnatural exchanges, lending money at interest (usury) was the worst Aristotle taught that interest on money represented gain without labor and was nonproductive and immoral in nature Reformu- lated by Thomas Aquinas, Aristotle's views spread and permeated Chris- tendom in the medieval era Usury became morally equivalent to sod- omy, sharing overlapping symbolism: both stood in opposition to methods of moral and natural increase In this medieval Christian tradition, usurers were cast outside of the Christian community and refused

communion or other rites The semiotics of the Jew, the usurer, and the

outsider became overlapping cultural references in this symbolic system Discursive connections among notions of evil, aberrant sexuality, outsider groups, and money-lending would continue in Western culture, thoroughly interweaving discussions of morality and community with those about political economy.®

Aquinas's dark view of commerce and money-lending came under challenge after Protestantism, especially Calvinism, elevated the notion of “calling” and thereby sanctified economic enterprise and gain But the ambivalence in Christian texts toward money-lending remained ‘strong, even in a liberal secular state such as the United States The recurrence of local antibank movements from the Jacksonian to the Populist eras kept alive suspicions about immoral conspiracies to keep interest rates high and thus extort unnatural profits from true producers

American society, despite or perhaps because of its material abun- dance, fostered a wide variety of critiques of marketplace thinking and its

social arrangements In the early nineteenth century, the white Southern

defense of slavery included an attack upon industrial “wage slavery.” George Fitzhugh, for example, decried the depersonalization of money- based economies and associated wage work with exploitation, even can-

nibalization, of people-as-laborers.’ In the same era, Northerners such as

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the monetary purchase of things William (“Coin”) Harvey's financial primer, popular in the 1890s, taught that “primary money” (representing simply an exchange of goods produced by labor) was necessary, but that “credit money” (promises to exchange products of labor in the future) was insidious Biblically oriented groups, such as the Populists, read “Coin” Harvey and linked their own hardships as debtors to far-off bankers His writings confirmed their moral vision of the need to protect small local communities from outsiders In their view, primary money functioned with republicanism, whereas credit money contributed to inequality, antirepublican concentrations of power, and imperialism The influence of Marxist-Leninist views around the turn of the century aug- mented the variety of diverse antibanking discourses By anchoring the concept of real value to the actual productive task (the labor theory of value), Marxist-Leninist analysis situated bankers as the arch representa-

tives of monopoly capitalism—the ultimate owners of the means of pro-

duction and expropriators of value

As the U.S economy became increasingly complex in the late nineteenth century, held together by national-scale financial institutions and credit markets, there was an upsurge in perceiving money and marketplaces as chains that degraded and bound people to servitude The depression of the 1890s highlighted inadequate currency flexibility and brought unemployment, declining commodity prices, and hardship in repaying debts Distant bankers could symbolize all of these ills and became targets To those who felt victimized by abstract economic forces, the very concepts of finance and money were often tinged with an anti-

grassroots, anti-commonsense, even anti-American character Anti-Se-

mitic sentiments, as well as Marxist radicalism, often embellished diverse

strains of antibanking thought

Antibanking discourses found appeal among shifting and disparate groups of people—from Bible-belt social conservatives to socialist radi-

cals—and could be invoked selectively by those who, at other times,

might feel quite positively about banks Frequently they targeted large-

scale, remote financial institutions but not local financial interests At the

turn of the century, antibanking critiques tended to predominate among farmer and labor groups, in the Populist movement, in parts of the Democratic party, among Southerners who resented the reconstruction of their region by Yankee capitalism, and in parts of the anti-imperialist

movement

Professional-managerial discourses, a very different but no less Ameri- can approach to the meanings of money and markets, represented monetary exchange as a path toward efficiency and prosperity The spread of

liberalized markets, in this formulation, accelerated the specialization

that would enrich all participants Moreover, markets were moralizing agents that improved, rather than degraded, individual character To the late-nineteenth-century economic theorists Alfred Marshall and Charles Cooley, both drawing from eighteenth-century Enlightenment thought, markets instilled discipline, regularity, responsibility A money economy taught thrifty accumulation through delayed gratification and elevated the right of individual choice to a preeminent social good It thereby im- parted both responsibility and freedom In this view, interest on money- lending was the reward for virtue, and banks—if properly run—were the very custodians of civic and individual progress

These discourses generally shaped the outlook of new professionals, business managers, and government officials, all of whom championed the global spread of market exchange.? Such groups generally looked with alarm upon U.S life in the late nineteenth century, fearing that overproduction, deflation, and ruinous competition presaged economic and social decline There was widespread concern that more goods were being produced than current distribution systems could handle, requir- ing some external system to help rationalize demand and supply.!° They thus sought a new role for managerial expertise—both private-sector managers and government administrators—as a way of curbing price fluctuation, cycles of boom and bust, and social disorder Instituting sound money (gold standard), scientific banking, careful regulation of

excessive or unfair competition, and an international expansion of pre-

dictable credit markets became their agenda.!! A centralized yet flexible and expanding financial order, run by experts, was seen as fundamental to a modern corporate order and a progressive society

This program of regulated international capitalism emerged from a coincidence of interests among different groups: government officials

eager to secure strategic and economic position, bankers and brokers

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professional elite but also from small-town Main streets, mid-level managers, and aspiring professionals throughout the country Their faith that fiscal stabilization and economic expansion would bring social progress marked a broad cultural movement that would help shape the national

and international order for the new century

These contrasting discourses of the meanings of money and money- lending had given substance to many of America’s cultural and political battles during the nineteenth century: the bank wars of the Jacksonian era, the greenback disputes of the post-Civil War era, and the Populist revolt Congress had officially demonetized silver in 1873, legally con- firming the single-standard, gold-based currency that—due to the relatively high price of silver—was the de facto circulating medium anyway By the early 1890s, however, the general shortage of currency and per- sistent deflation, especially harmful to debt-ridden farmers, produced

a political movement devoted to the recoinage of silver Raising a cry

against the “crime of °73,” the Populist party, silver-mining interests, and others called for bimetallism as a way of enlarging the supply of money They blamed private bankers for following policies that kept interest rates high and restricted the supply of money In 1896 the forces of free silver, led by William Jennings Bryan, captured the Democratic party and made the currency question the most emotional issue in the election

The bitter 1896 electoral controvetsies, centering on whether the

country would have a gold or a bimetal standard, drew heavily on professional-managerial and antibanking discourses Republican presidential candidate William McKinley and others who advocated the gold standard identified their sound-money policies with the “civilized” world Because industrial countries, most notably England, based their currencies on gold, those who were interested in emulating or cementing ties with Europe favored the gold standard Pro-gold advocates stressed that

a monometallic standard, based on gold, was a prerequisite for maintain-

ing a predictable economic environment and developing a sound banking system and credit markets Because of the continually fluctuating prices between gold and silver, they argued, an established exchange

ratio between gold and silver would be impossible to maintain, and bi-

metallism would probably, in fact, mean a silver standard for the United States Silver-based currencies, they claimed, were characteristic only of “backward” lands in Asia and Latin America

The “silverites” turned these arguments on their heads To them, the

civilized standard represented plutocracy; gold benefited the money- lenders and the international financiers Coinage of silver, allowed in the bimetallic standard, meant adequate circulating medium for the common people Opponents of the gold standard also recognized the international dimension of the controversy; they stressed that the biggest markets for the United States would eventually be found in silver-standard countries of Latin America and Asia.”

The election of 1896 became one of the most heated in U.S history Sound-money groups across the country mobilized to beat back what they considered to be free silver’s radical challenge to currency stability and industrial progress They won, with the election of President William McKinley and Vice-president Theodore Roosevelt During this highly charged domestic debate, the position favoring a gold standard took on the fervor of a religious crusade, portraying the spread of gold-

based currencies as the key to global progress and civilization The elec-

toral campaign for sound money forged ties among those within the emerging corporate order who wished to reshape U.S institutions in a modern and scientific direction In 1900 McKinley signed the Gold Standard Act, fixing gold as the only legal tender monetary metal

Victorious at home, pto-gold advocates then turned to spreading their

gospel abroad In their view, the turn-of-the-century global currency situation was highly disadvantageous to U.S overseas interests All economic transactions—private commerce and investment or even strategic expenditures such as payment for troops stationed overseas and remit-

tances for construction of a proposed trans-isthmian canal in Central America—involved international payments These payments could be more costly or complicated for Americans if exchange rates fluctuated violently, if monetary values were not predictable, and if international

accounts were denominated in pound-sterling and kept in London, a

situation that gave British businesses a competitive advantage.'3

Gold-standard Republicans began to call for a financial strategy to stabilize exchange rates, by spreading the international gold standard, and to enhance the position of New York banks in foreign exchange transactions Such a strategy was consistent with America’s new global power, and it fit the government's growing activism in promoting economic expansion Although defeated in monetary policy in 1896, the silverite and Populist positions, particularly the distrust of banks and

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es-pecially across America’s farming belt These antibanking views remained strong and by the 1920s would turn into an anti-imperialist critique of the foreign policy of dollar diplomacy

Turning Silver Standards into Gold

The Republican administrations of McKinley and his successor Theo- dore Roosevelt shaped a financial policy centered on spreading the gold

standard—first to the new U.S colonies, and then to other areas In 1898

the United States fought and won a short war with Spain and acquired the former Spanish possessions of the Philippines and Puerto Rico as colonies Both were effectively on a silver standard, and the U.S government therefore faced the immediate problem of devising a currency policy in silver-standard areas With the passage of the Gold Standard Act of

1900, the Bureau of Insular Affairs (BIA) in the War Department, which

took charge of administering colonies, placed a high priority on changing the colonies’ currencies to gold in order to bind them economically to the United States McKinley Republicans held strong beliefs that both countries and people could be rehabilitated through sound currency They pointed out that rationalizing systems of exchange on the basis of gold would expand markets, attract investment, and bring material progress Moreover, gold stabilization would teach people the steady habits

of accumulating money and paying debts

Yet dilemmas arose Placing the colonies on a gold standard might facilitate trade and investment with the United States, but a new currency system could also provoke economic dislocation and popular resent- ment After 1900, the BIA sent currency experts to Puerto Rico and the

Philippines to wrestle with the technical problems of extending Amer-

ica’s gold standard These efforts provided practical training for a small group of financial advisers Afterwards, between 1903 and 1905, they extended their advisory services to several other silver-standard areas:

China, Mexico, Panama, Cuba, and the Dominican Republic

These government-sponsored efforts to rationalize foreign currency systems around a single monetary standard stimulated the emergence of a new profession of foreign financial advising and a foreign financial policy designed to assist the nation’s expanding exportation of goods and investment capital The U.S government’ efforts to reform the currency

systems of seven colonies or countries between 1900 and 1905 highlight

the new experts’ ideas about international monetary affairs These earli- est efforts to modernize foreign currency systems were part of an activist governmental policy—paid for by the U.S government—not part of a private-sector or bank-sponsored advisory process The aims, techniques, and agents of later dollar diplomacy would spring directly from this turn-of-the-century, government-sponsored active undertaking to spread an international gold standard.1*

The U.S government made its initial foray into gold-standard foreign currency reform in Puerto Rico Asa result of a recoinage carried out by Spain in 1895, Puerto Rico already had a recently installed single coinage, controlled to keep its fiduciary value above its specie value.'5 Most Puerto Rican business groups strongly supported the adoption of U.S currency, welcoming new economic ties with the large and hitherto un- accessible market to the north Only the planters—particularly sugar

planters—exptessed some initial reluctance In Puerto Rico, as else-

where, planters of export crops generally sold their goods for gold-based

currency, but they paid the costs of production, mainly wages, in the local silver-based currency that was depreciating in relation to gold throughout the late nineteenth century If wages and domestic prices were suddenly to be calculated in gold-based currency, export agricultu- ralists would see a sharp decline in profits and in the competitiveness of their products in international markets Currency reform could thus severely damage their industry Instead of denouncing the reform, however, the sugar planters supported it and then successfully pressed for free-trade access to mainland markets.!° With so little opposition, the Puerto Rican monetary exchange was simple The U.S treasurer in charge of currency reform, Jacob Hollander, set the exchange rate at 1:.60, and within a few months Spanish coins had totally disappeared from circulation.!”

USS financial advisers closely studied the dislocations caused by the exchange of currency A peso was worth only $.60 (U.S.), yet because both the U.S dollar and the Puerto Rican peso had a similar weight and fineness, Puerto Ricans tended to see the two coins as equivalent Puerto Rican workers went on strike throughout the island protesting that the exchange had reduced their wages Indeed, all observers agreed that the short-term effect of the exchange had disadvantaged local wage-earners and enriched retailers, many of whom were Europeans.!® Edwin Kem-

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currency reform in more than a dozen countries around the world, wrote in 1916 about the lessons he learned from the Puerto Rican reform He

conceded that the currency exchange had a temporary adverse effect

upon labor, resulting from confusion of monetary values, but he insisted that it would bring a more important long-range advantage to workers Generally, the strikes had been settled with wage increases, and these

wages were now in gold-standard currency No longer could planters

take their profits in gold and pay labor with depreciated silver While wages and prices experienced short-term dislocation, once values stabi- lized, he concluded, workers were undoubtedly better off being paid in gold-equivalent coins.19

U.S financial advisers from 1900 on consistently argued that introducing a single gold-standard currency into a country with a depreciat-

ing currency represented an economic advance for labor By emphasizing

that their reforms were anti-inflationary, they stressed that they brought more purchasing power to common working people and greater incen- tive to save.0 U.S gold-standard reformers thus believed their work simultaneously promoted social uplift abroad and stimulated new trade and investment opportunities

None of the conditions that aided currency reform in Puerto Rico existed in the Philippines, the other former Spanish colony which the

United States took over U.S policymakers never questioned the desir-

ability of introducing gold-standard currency into Puerto Rico, because its proximity to the mainland implied a close economic bond The Phil-

ippines’ economic connections, however, were with Asia Many Ameri-

cans, particularly those who had favored bimetallism in the currency debate of the 1890s, argued that removing the new colony from a silver base would cause severe economic stress Pro-silver members of Con- gress hoped to preserve bimetallism in this colonial outpost, and even many committed gold-standard advocates doubted the practicality of abandoning silver By 1900, Filipinos who had fought for independence against Spain were taking up arms against the new U.S occupation, and U.S policymakers worried that the economic disruption, as well as the symbolism of introducing a new gold-based currency tied to the United States, would exacerbate political-military problems Furthermore, the Mexican silver dollar—the most prevalent coin in Asia—had long served as Filipino currency U.S officials recognized the practical difficulties of

replacing a long-established coin with a new and unpopular one

Still, arguments for bringing gold-standard currency to the Philippines

prevailed An administration ideologically opposed to bimetallism could

hardly maintain a bimetallic standard in a U.S colony Moreover, Secre- tary of War Elihu Root sent U.S troops to the island to suppress the

insurrection, and in addition to this expense there were other large ad-

ministrative outlays of all kinds Disbursements went out in U.S dollars, which the colonial administration in the Philippines declared legal tender, yet incoming receipts tended to be paid in cheaper, Mexican dollars The colonial government complained about large monthly losses simply because of the adverse exchange.”!

Currency reform for the Philippines clearly required special expertise, and the BIA hired Charles A Conant to work out a plan Conant, an ardent apostle of the gold standard, was a financial correspondent for the New York Journal of Commerce and a friend of Lyman Gage, a Chicago

banker and gold-Democrat whom McKinley had appointed as Secretary

of the Treasury A veteran of the domestic crusade for gold who had helped negotiate the congressional compromise that became the Gold Standard Act of 1900, Conant would become the major figure in U.S gold-standard diplomacy before World War I, and the country’s first influential specialist in the new field of international currency reform Nearly all of the U.S foreign financial advisers before the Great Depres- sion of the 1930s began their careers in the Philippines administering the system he devised He was truly the founder of the profession of foreign financial advising in the United States.”

In “The Economic Basis of Imperialism,” an essay published in the

North American Review in 1898, Conant argued that advanced nations

had invested in all the production that they could profitably accommo- date and now faced a “superabundance of loanable capital” along with rapidly diminishing rates of return Restless capital, he wrote, would need to turn “to countries which had not felt the pulse of modern progress” to find profitable rates of interest Although the United States had not yet seen its profit margins fall to the European level, according to

Conant, interest rates had declined over the past five years, and the

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or simply devised a strong naval and diplomatic strategy to promote access for investment in hitherto uncolonized areas The result, in any case, would be the restoration of profits and prosperity to the imperial

nation and the spread of productive enterprise to areas receiving U.S

capital Conant theory, identifying overproduction and declining profits as the forces behind late-nineteenth-century imperialism, reappeared in the analysis of A J Hobson and ultimately became enshrined in the writings of V I Lenin.” Yet unlike these more famous theorists, Conant did not believe that adverse social consequences would follow A man whose beliefs and career were firmly situated within professional-managerial discourses, Conant argued that prosperity, profits, and moral uplift would ripple out from advanced nations in ever-widening arcs, and all would benefit His economic interpretation celebrated both capitalism

and imperialism.2+

In the Philippines Conant worked out the practical problems of currency reform Conant feared that the Filipino people would resist any- thing but silver coinage, yet he was committed to spreading the gold standard into silver areas He thus recommended a gold-exchange stand-

ard (Britain was simultaneously experimenting with a similar reform in Egypt, the Straits Settlements, and India.) Under this plan, the Philip-

pines would introduce a silver coinage (a new peso) that was pegged to the U.S gold dollar The coins would not be based upon the intrinsic

value of their silver (as were the Mexican pesos then in use) because the

relative prices of gold and silver fluctuated constantly In fact, the silver content of the new coins would have to be considerably less than their gold exchange value to prevent people from melting them down to sell for bullion whenever the price of silver rose high

Switching to the new coinage would generate a considerable amount

of seigniorage Conant recommended that the government deposit the

seigniorage, at interest, in a New York bank, creating a fund to guarantee the gold value of the currency This gold exchange fund would en- able drafts from Manila to be served on New York and vice versa by a simple banking transaction, rather than by the transportation of coin or specie The Philippine government could also stabilize its exchange rate

against the dollar by buying or selling drafts against the fund In addi-

tion, Conant recommended the subsequent issue of a controlled amount

of paper money, secured by a conservative reserve fund of the new gold-

based peso The more sound paper money that came into circulation, of

course, the greater would be the seigniorage for the United States-run government in the Philippines.”

Conant’s proposed gold-exchange standard found favor in the executive branch but ran into opposition in Congress Advocates of domestic bimetallism and representatives from silver-producing states argued that

the coinage would inevitably devalue to the intrinsic value of its silver,

and they stressed that removal of the Philippines from the silver standard of China, its major trading partner, courted economic disaster The currency reform stalled in Congress, while the U.S admunistration in the Philippines experienced the confusion and the costs of a bimetallic system of both Mexican silver and American gold dollars.*¢

In an attempt to help push the currency reform through Congress, the BIA again hired Conant—this time to lobby domestic interests and Con- gress on behalf of his own proposal (surely an extremely unusual arrangement by the executive branch in the early twentieth century)

Conant mounted an energetic campaign He met with editors of the

leading financial journals and received promises of favorable editorials

(some of which he wrote himself); he visited leaders of the banking

community, warning that if they proposed to seek public deposits, “it would be advisable for them not to antagonize the policy of the War Department”; and he held countless meetings with members of Con- gress Finally, Conant even courted his major adversaries, the representatives from the silver companies He assured them that, if they would stop blocking the currency reform, the government would purchase silver for the new Philippine coinage from them Conant’s lobbying paid off In March 1903, the currency bill finally passed Congress.?’ Imple- menting the plan proved extraordinarily difficult, and the BIA asked Conant to join the colonial government to oversee the faltering attempt Conant declined because President Roosevelt had just appointed him to a Commission on International Exchange created to help Mexico and China adopt a similar gold-exchange standard But Jeremiah Jenks, a professor of political economy at Cornell who had just been appointed to serve with Conant on the Commission on International Exchange, advanced the name of Edwin Kemmerer, his former graduate student.?8

Although young and inexperienced, Kemmerer built upon Conant

and Jenks'’s economic theories and effected a successful conversion in the

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international economic advisers coins, called “conants” (despite

conant also went into Circulation.29

Despite problems, the Philippine currency

plementing and Operating a gold- provided a model for im- exchange system.30 “The Philippines

The Commission on International Exchange

The time seemed o Pportune With th i i

States to a gold standard after 189 nun commitment of the United 6, Mexico's powerful Finance Minister

and China both requested the United States to send financial advisers to devise currency reforms that would stabilize exchange with gold-standard countries.3+ President Roosevelt received a special appropriation

from Congress to establish a three-person Commission on International

Exchange and appointed Conant, Jenks, and Hugh Hanna to the new commission “The controlling motive of the United States in acting with

Mexico and China,” the commissioners wrote, “is the beneficial results

to the export trade and investment opportunities which would come

under such conditions to the gold countries and the increased economic development which would come also to the silver countries.”35

The commission's official charge, shaped largely by Conant, included two major objectives: introduction of a gold-exchange standard into Mexico and China and stabilization of silver prices by rationalizing European purchases of the silver needed for coinage Coordination of international silver purchasing, also helpful to United States silver interests, would stabilize Mexico’s dominant industry—silver mining—so that it could withstand the pain of abandoning the silver standard in Mexico (and possibly in China) The Commission had more subtle pur- poses as well Spearheading reform of China’s currency would give the United States a preeminent position in Chinas financial affairs and assert

its ambitions in the Pacific.36 The Commission visited England, France,

Germany, and Russia to present its proposals Publicly, the commissioners gained support, but privately they reported that Europeans had expressed little enthusiasm because the effort implied an important role for US experts in China.3”

Meanwhile, the commissioners also turned their attention toward

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States made Cuba a logical target for conversion to the gold-exchange

standard, the island remained unreformed

The anomaly of this unreconstructed currency in a U.S dependency

requires explanation Why did the staunchly pro-gold administrations from McKinley to Taft support bimetallism in Cuba? First, Cubans

feared becoming a outright colony of the United States, and the US

military commander in Cuba, Leonard Wood, tried to calm unrest in the

island by publicly denying any desire to establish U.S currency there In

1903, when Conant suggested that the Commission on International

Exchange visit the island, President Estrada Palma refused, and the U.S

minister in Cuba reported so much Opposition that, he said, the idea should be dropped.*! Second, an economic motive against Cuban currency reform also emerged In 1901 Leonard Wood opposed reform be-

cause “It is evident that action would increase the cost of production of sugar at the present time twenty percent.” As U.S investment capital poured into the Cuban sugar industry, the planters’ influence on policy undoubtedly increased In 1907, when Conant began another vigorous

campaign to gain the BIAs support for introducing the gold-exchange standard into Cuba, Provisional Governor Charles Magoon strongly opposed Conant, arguing that the prevailing bimetallic system hastened the agricultural development of the island By raising wages, a single gold- based coinage would deal a devastating blow to planters

Magoon’s argument, of course, might also have applied to Puerto Rico, the Philippines, Panama, Mexico, China, or even the United States (as

the agricultural-based Populists well understood) Selling agricultural

products for a currency of greater value and paying costs ina currency of lesser value certainly increased planters’ profits But in most of the coun-

tries that U.S policymakers moved toward gold, U.S investors had as yet

little stake in plantation agriculture In these areas, the currency reform-

ers spoke of uplifting agricultural labor, of raising wages to provide new consumers for imported goods, and of facilitating U.S exports and investments by providing an investment climate for the building of rail-

ways, ports, and processing plants (all of which required massive imports of capital goods) In Cuba, while these same export-oriented interests

were present, U.S investors’ largest stakes were in the actual ownership of plantations By World War I, U.S investments in Cuban sugar had

risen to nearly $95 million.*+ Gold-standard diplomacy in Cuba conse-

quently did not fit so well with the pattern of already established U.S

economic interests When Conant died in 1915 in me he was still

trying to sell the glories of the gold-exchange standar oO vo gold in

‘He had, however, been pleased about Mexico’ conversion : 8 an

1905 Unlike other countries that Conant advised, Mexico a is own accomplished currency experts, and the Commission on Interaticr !

Exchange played only a minor consultative role Still, Liman ou sao tion of a gold-exchange currency drew heavily upon Conants exp

i ilippine system

_— cout not totally abandon its historic silver peso as a creat ing medium; instead, the problem was how to peg it to ee As tn the Philippines and Panama, the government would have to ss a a value for the peso that was higher than its intrinsic silver value p vent people from melting down the coins How could the government get the silver coin of its country to begin circulating at a value above mẹ mm c

worth? Conant and some Mexican experts argued that, as in t co P

pines, the government would have to maintain a gold reserve tne i large enough proportions that it would inspire absolute con dence i Mexico's ability to maintain the gold value of the coin Limanto wr ane others did not believe, however, that the Mexican government pos essed sufficient resources for such a fund They believed that a coinage oul circulate at a value well above its intrinsic worth if its quant l wer closely controlled and tightly Tay Sharply ono to on arity supply would naturally and gradually force

high value that could then be peepee 0 ee ategy the Nano song

i re somewhat skeptical of this s , cm

menL adopted it The Currency Reform Act of 1905 placed Mexicos currency on a gold-exchange basis an brought the issuance of coinag

nder strict governmental supervision

ave sectmieally a success, the transition to the gold sandard a Mexico clearly ushered in several years of currency shonage st “s pat ofa planned effort to raise the gold-backed silver coinage above worth as specie; and, after 1906, as a result of ng nh se

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22 Financial Missionaries to the World Gold-Standard Visions 23

tionary governments after 1910 would reverse Limantour’s reform and begin issuing a growing volume of inconvertible paper money

Panama, Cuba, and even Mexico remained sideshows to the main

preoccupation of the Commission on International Exchange: China After the Boxer uprising of 1900, China signed a treaty with all major foreign powers agreeing to pay an indemnity for damages The treaty did not stipulate whether payments were to be made in gold or silver, and

U.S officials wanted to settle this issue China had begun paying its

Boxer indemnity obligations in silver, an action that considerably re-

duced the value of the payments and enraged foreign diplomats U.S

officials tried to befriend the Chinese government by not joining the European powers in formally protesting against the silver payments, but they feared that the issue would incite Europeans to declare China in default—an action that could lead to military involvement.*® Thus Secre-

tary of State John Hay took the position that, in accepting U.S currency

advisers, China had implicitly accepted a treaty obligation to move to gold.*° Hay’s interest in the gold standard for China, then, was part of his broader strategy to prevent European encroachment there and to support the “open door.” He and members of the CIE also hoped to give Ameri-

cans, rather than Europeans, a prominent advisory role in the Chinese treasury.>°

By August of 1903, Jeremiah Jenks of the Commission on Interna- tional Exchange was ready to visit China to urge the gold-exchange standard Root wrote Roosevelt that the trip would be “greatly to the credit of our country to have taken the lead in virtually securing

throughout the world the same plan which we ourselves have already

inaugurated in the Philippines.”>! Although the commission’s special congressional appropriation had run out and State Department officials knew that Congress would be unwilling to authorize more money, the War Department found a way to finance Jenks’s trip without congressional appropriation After direct urging from President Roosevelt himself, the U.S colonial government in the Philippines agreed to pay Jenkss

expenses to China.5?

Jenks’s China mission in 1904 was a total failure It provided a classic example of the cultural problems that would often afflict future economic advising missions To Jenks, armed with economic expertise and technical solutions to difficult currency dilemmas, the move to a gold-

exchange standard was so economically rational and so beneficial to all

parties that he believed patient explanation would necessarily win out Day after day, Jenks conducted lengthy sessions on the economics of currency; he made arduous journeys to various provincial capitals; he had long passages of the rationale for the reform translated into Chinese and circulated among local officials

Yet he remained utterly ignorant of the cultural context in which he operated and made many miscalculations For example, his time-con- suming conferences designed to convince Chinese officials to adopt his

plan, as he later found out, were wasted on low-level secretaries with no authority at all.53 Moreover, Chinese advisers saw Jenks’s mission as just

another Western plot to impoverish China by raising its indemnity payments, forcing foreign advisers into its Treasury, and debasing its cur-

rency.>* China did enact a currency reform in 1905, but it was, in effect,

shaped as a nationalistic reaction against the U.S proposal.° Jenkss failure in China terminated the official duties of the Commission on International Exchange and marked all but the end of using government- funded advisers to spread the gold standard abroad.*°

Yet President Roosevelt and Secretaries of State Hay and Root maintained their zeal for effecting gold-standard currency reform Fiscal instability in the Caribbean would turn their attention toward another candidate for financial rehabilitation: the Dominican Republic Mean- while, Conant and Kemmerer also helped shape the government's foreign financial policy at the third Pan-American Conference in 1906

Conant was in close touch with John Barrett of the Pan-American Union,

promoting a common gold-exchange standard, and Barrett asked Kem- merer to write a report on his gold-standard reform in the Philippines for use at the conference The financial resolution passed by the conference endorsed a monetary plan that would “do away with the enormous loss and inconvenience that exists where widely fluctuating rates of exchange” are found.’” After working on all of these international financial policies, the U.S group of experts had garnered confidence from a wealth of practical expertise

The New Specialists in International Financial Advising

This first generation of international financial advisers—especially

Conant, Jenks, and Kemmerer—laid the intellectual and practical basis

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profes-sional-managerial điscourses Working together with government officials and bankers, they sought to bring nations onto a gold-exchange

standard, regulated by a national central banking authority, with gold

funds deposited in New York and coinage valued in U.S money An

Americanized gold-exchange standard would simplify international transactions and create a gold dollar bloc, centered in New York, to rival

the de facto sterling standard that had prevailed in most of the world since the late nineteenth century and provided a competitive advantage for British businesses Often viewing Britain as an obstacle to U.S influence, these experts cast relations with Britain in a generally competitive,

rather than cooperative, framework In addition, they considered U.S

imperialism to be a benevolent carrier of science and civilization that would uplift backward economies and peoples Through their work they

helped define the new profession of economics, especially the sub-spe-

cialty of international finance, and speeded the shift from the Anglo-

American tradition of political economy toward the new science of economics.58

Charles Conant was the most influential and visible of these early professionals While his emphasis on technical expertise and on governments expanded role as an economic regulator characterized him as a precursor of modern economics, his almost visionary faith in the gold-

exchange standard as the magic key to an integrated progressive order

gave his work a decidedly nineteenth-century cast Like the single-tax plan of Henry George, the distributionism of Edward Bellamy, or the free-silver platform of William Jennings Bryan, the gold-exchange standard seemed to Conant the sole path to an earthly millennium and the

proper subject for a popular moralistic crusade He was part technician

and scientist, but also part evangelist and moralist He had no academic

affiliation or formal credentials.59

During the first fifteen years of the twentieth century, Conant played many roles He championed passage of the Gold Standard Act in the United States, devised the Philippine and Panamanian currency reforms,

worked with Mexico and China, effected a controversial currency reform

for Nicaragua, and pushed the U.S government and banking community

to work toward instituting gold-exchange reform in Cuba, China, Libe-

ria, Bolivia, Guatemala, Honduras, and other potential dependencies.69

To Conant, antiquated systems of money and banking were the principal

obstacles to progress At home, he crusaded for a centralizing banking

system and more governmental regulation over securities exchanges Abroad, until his death in 1915, he acted as a promoter-consultant for

Several prominent investment banking houses Throughout his career he

wrote articles, editorials, and books about his subject, the most ambi-

tious of which was The Principles of Money and Banking (1905), trying to

educate Americans about international currency and finance.*!

Conants friend and co-worker on the Commission for International Exchange, Jeremiah Jenks, had a long career that mixed academic ap- pointments (in political economy at New York University and then Cor- nell) with foreign advising His principal ideal, like Conant'’s, was devo- tion to the gold standard For years he maintained an interest in Chinese currency reform that had originated in his ill-fated trip of 1904 In 1928, when Edwin Kemmerer organized an economic advising mission to China, the aging Jenks wrote Kemmerer that he envied the younger man’s opportunity to complete the task begun a quarter of a century earlier.®? The State Department also appointed Jenks to serve as a director of the Nicaraguan National Bank under the Financial Plan of 1917 (a classic of dollar diplomacy) and employed him to do an economic study of the Nicaraguan situation in 1925

It was Jenks'’s student Edwin Kemmerer, however, who became the

first economist to build a professional career solely on the speciality of international financial advising As a young man, Kemmerer directed Conant’s currency reform in the Philippines, studied similar British ex- periments with the gold-exchange standard, and then joined Jenks in the department of political economy at Cornell In 1912 Kemmerer moved to Princeton University and continued to build his expertise on foreign banking and currency issues, publishing Modern Currency Reforms in 1916 During the 1920s, when he became the most sought-after eco-

nomic adviser in the world, he worked at times for the U.S government

(as banking expert for the Dawes Commission), as a paid consultant for

the investment banking house of Dillon Read from 1922 to 1928, and as

head of special advisory missions hired by over a dozen foreign countries Kemmerer helped establish a chair of International Economics at Princeton in the late 1920s (which he then occupied) and taught many students, including Arthur N Young and William Wilson Cumberland, both of whom had long careers in the profession of foreign financial

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These early practitioners of international financial advising deployed the professional-managerial discourse to popularize the global spread of the gold-exchange standard In doing so, they participated in the intellectual changes that were sweeping economics as well as other social sciences.** As the profession of economics took shape after the 1880s, debates over socio-political visions—particularly over the proper relationship between government and business—assumed center stage Whereas earlier theoreticians, such as Richard T Ely, had considered the possibility that socialism would be the natural outgrowth of a liberalism that needed to be guided by strong state controls,.the labor struggles of the 1890s led most U.S social scientists to turn away from the class polariza-

tion of socialism and to advocate regulated capitalism Jeremiah Jenks,

for example, used his presidential addresses before the American Eco-

nomics Association in 1906 and 1907 to cali for a slow evolutionary

change in capitalism He asked economists to exaggerate neither the evils nor the benefits of capitalism and urged carefully designed public regulation Calls for regulatory controls and debates over the details of imple- menting such controls edged the discourses of economics away from the realm of broad moral philosophy and toward narrower technical exper-

tise.65

The international economic views of these new experts adopted the

paradigm of neoclassical marginalism—a fairly simple set of propositions

that gave so-called scientific support to liberal capitalist markets Formu- lated in England in Alfred Marshall's Principles of Economics (1890), marginal economics provided mathematical tools for calculating value,

showed how markets generally set equilibrium prices, advanced the

quantity theory of money, and also allowed for the possibility that governmental regulations might be needed to maintain the ideal workings of supply and demand Kemmerer wrote that “the quantity theory of money is a statement of natural law,” but “in the field of economics as in the field of mechanics, it is possible to harness natural forces” either to make price levels more volatile or to keep them stable.” All of these experts believed that central banks were the harness that would naturally

maintain price stability

Conant extolled the benefits of the gold-exchange standard in an ava- lanche of books, articles, and editorials, especially after his success in the Philippines His writings were particularly directed at bankers, whom he considered utterly ignorant of international economics, and at the many

politicians and others still imbued with old intrinsic-value theories of

money.® He believed that a consistent standard, based on gold, would make financial networks more efficient and promote international prosperity by enlarging global trade and investment The silver or bimetallic

standards, he believed, were the major obstacles to the benevolent work-

ing of the classical law of comparative advantage Conant acknowledged that a depreciating silver standard brought short-term advantages to a

country’s export sector and hence to its balance of trade But, he argued,

the increase in export trade, measured in the gold value of silver, really meant that countries on the silver standard were devoting “a larger and larger quantity of the products of their labor in exchange for the products of the gold countries.” Thus the benefits of the trade increase derived from a falling exchange left silver-standard countries “poorer in the end than if their trade had not expanded.”® Certainly, Conant’s prescrip- tion for the world economy promoted the integration of poorer areas of the world into economic systems of the dominant powers—a process that he and others termed imperialism—but he stressed that it removed producers in these areas from the yoke of exploitative local export-oriented elites Such people impoverished their countries (by supporting a depreciating exchange) in order to enrich themselves personally (by

increasing the difference in value between labor rates at home and international prices abroad)

Conant went on to argue that the gold-exchange standard, rather than a simple gold standard, provided the most practical alternative to nations that abandoned silver Shortage of gold bullion, he pointed out, prevented world-wide adoption of gold coinage, but the Philippines proved

the effectiveness of a gold-exchange standard This standard had the

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Conant claimed his system was also compatible with diverse national

traditions Unlike bimetallism or a strict gold standard, the gold-exchange concept could be adjusted to local needs “It leaves each state free to choose the means of exchange which conform best to its local condi-

tions Rich nations are free to choose gold, nations less rich silver, and

those whose financial methods are most advanced are free to choose paper Each is able to plant itself on the gold standard and to maintain the parity of foreign exchange by the methods which to it seem the most

efficient.”7!

A gold-exchange standard had one characteristic that Conant acknowledged was potentially objectionable: control over coinage In this, the system departed from older liberal faiths in free coinage and a limited economic role for government “Government controls of the tools of ex-

change,” Conant wrote, “involve dangers which are not to be lightly put aside,” because of government's historic tendency to abuse fiat money

But in this system “there would be little temptation to issue token coins in excess of the demand,” he argued, “because the penalty would be swift in coming in the flight of gold and the imminent risk that the par of exchange would be broken with other commercial nations.””2

Conant thus justified an important new role for a central bank as a

currency stabilizer and strongly supported the banking reform move-

ment that culminated in the Federal Reserve System of 1914 The financial advisers who followed Conant, especially Kemmerer, would promote the spread of central banking systems as the commerstone to the gold-exchange currency system they sought to institute globally Central banks, operating according to scientific principles in each country, would maintain a predictable global environment for an expanding volume of exchange Conant anticipated John Maynard Keynes in expecting new, scientific central banking systems to maintain an elastic currency, lending heavily in times of domestic crisis to help maintain demand Re- formed currency and banking systems, Conant also predicted, would encourage the rapid development of stock and bond markets, another means of enlarging the volume of global investment

Although Conant sought a worldwide gold-exchange standard, within that uniformity he believed that currency blocs would necessarily come into being, as less developed countries would deposit their gold stabilization or reserve funds in the banking systems of more advanced countries

Which country became the holder of these funds and the major conduit

for exchange transactions of all kinds would be important in the developing rivalry between the financial centers of New York and London

Conant had complete faith that foreign experts, who understood com-

plex formulas for financial stability and advancement, could implement their programs from country to country without endangering the auto- mony of these countries The mission of U.S currency and banking reformers was “not incompatible with self-government, provided that government is sane and progressive” and uses “some of the methods and the constructive reforms which have made Egypt blossom as a rose under British authority, and which made the American flag welcome in the

early days in Florida, in Louisiana, in Texas, and in California, and still

make it welcome wherever it is planted.”’3 Like many progressives of his

age, Conant saw no conflict between democracy and expertise or be-

tween progress and imperialism In sum, Conant helped to set the theo- retical framework and the agenda for the first generation of U.S foreign

financial advisers His economic theory entirely rejected old intrinsic-

value theories and the “real bills doctrine” in favor of quantity theories of money, and it wedded quantity-theory economics to the new profession of foreign financial advising

Jenks and Kemmerer, trained economists, shared Conant’s views Ap-

proaching their discipline academically, they repetitively invoked the word “scientific,” a rhetorical move that set their recommendations apart from politics and helped build an ethos of professionalism.” They refined a vision of the gold-exchange standard as a semi-automatic mecha- nism that would adjust each nation’s balance of trade and price level, keeping the world market in a state of relative equilibrium When gold

reserves were paid out to cover an adverse trade balance, central banks

would automatically restrict their lending, causing an adjustment of the price level and, consequently, a boost in exports Increases in a nation’s gold account would work in reverse.’> They disliked trade barriers that

interfered with such automatic working of the gold standard, and their advising missions nearly always recommended reform of customs duties

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and public finance Advancing these ambitious reform agendas was an objective that found implicit expression in the Theodore Roosevelt Cor-

ollary to the Monroe Doctrine and then in the government policy that

came to be known as doliar diplomacy The international spread of broad fmancial reforms, according to the new economic professionals and gov-

ernment officials, would stabilize export earnings, import costs, and the

value of payments owed to foreigners (as in the case of China) or by foreigners (as in the case of Panama) Greater predictability in exchange

rates and easier currency convertibility would, in turn, undermine the

power of local loan sharks and exploitative elites, who profited from a

depreciating silver standard or a system of inconvertible paper money, and open the way to responsible governments that would be both solvent financially and more representative politically Currency inflation, especially to Kemmerer, was the primary cause of social injustice and instability.”” Instituting gold-standards and the broader financial reforms upon which this sound money rested, then, were cast as parts of a larger mission of political uplift and social benevolence

The turn-of-the-century crusade to spread the gold standard produced a group of professionals who gained practical experience first in U.S colonies and then elsewhere Gold standard reformers both represented and constructed discourses about stable value (gold or gold-exchange standards), mutual uplift (from interconnected economic systems), and professionalism (the expertise to manipulate economic systems on a scientific model with little reference to geography and culture) They and other like-minded thinkers became the experts who would make dollar diplomacy seem both a possible and a progressive cause Dollar diplomacy would emerge within the professional-managerial discourses of these new experts, discourses shared by officials in an increasingly activist government and by those U.S bankers who were beginning embark on international lending

2

The Roosevelt Corollary and the Dominican Model of 1905

In addition to foreign financial advisers and their gold standard- central bank agenda, three other turn-of-the-century developments were critical to the emergence of dollar diplomacy: the spread of cultural assumptions that linked ideas about race and manhood to the paternalis- tic oversight of weaker states and darker peoples; the U.S government's new economic and strategic priorities in the aftermath of the War of 1898; and significant changes in the structure of U.S investment banking All of these came together in the 1905 initiative in the Dominican Republic—an initiative that would provide the prototype for President William Howard Taft’s subsequent policy of dollar diplomacy

Gender, Race, National Interest, and Civilization

Acquisition of the colonies of Puerto Rico and the Philippines after the War of 1898 sparked a contentious debate in the United States over imperialism The long, bloody suppression of the Filipino forces, who continued their fight for independence against the United States until 1902, fueled a grassroots controversy between imperialists (arguing for colonial expansion on the basis of economic gain, the “white man’s bur- den,” and strategic imperatives) and anti-imperialists (arguing against it on the basis of economic loss, cultural inappropriateness, and strategic peril)

Opposition to colonialism grew to be so formidable that, after about 1900, policymakers had to assume that the United States could forcibly acquire no more territory.2 Theodore Roosevelt, for example, believed

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that U.S governance in the Philippines was benevolent and wished that his countrymen would look “forward to a couple of generations of con- tinuous manifestations of this [imperial] spirit.” Like many fellow progressives, he did not see colonialism as exploitative and admired Britain’s role in India Still, he acknowledged that Filipino independence would need to come soon because “Americans had no taste for long-term rule.”3 Once an outspoken imperialist, Roosevelt never used his presidency to acquire more colonies on the Philippine model After encouraging Pana- manians to break away from Colombia, he signed the Hay-Bunau-Varilla Treaty of 1904 with Panama, making the new country a protectorate on the model of Cuba When a crisis loomed over governance in the Do- minican Republic in 1905, Roosevelt emphasized the drawbacks of colonialism, claiming in his typically colorful prose that he would rather eat

a porcupine wrong-end-to than annex the troubled island as a possession.*

The arguments against forcibly acquiring new colonies, however, did not necessarily produce a constricted view of U.S interests President Roosevelt was a dedicated internationalist, advocated a large navy, and believed in the civilizing mission of the United States Even most anti- imperialists agreed that national interest and international benevolence required exerting some kind of influence overseas Secretary of State Elihu Root warned that differences in race and culture made outright acquisition of colonies undesirable, but that the United States still had a responsibility to spread its commercial and moral influence He took seriously the country’s obligations to lead the hemisphere and was the first Secretary of State to take a good-will tour of South America During

the first five years of the twentieth century, the Roosevelt administration

thus developed clear and expansive policies that sanctioned the creation of dependencies but not colonies.5 The justifications of spreading civilization and securing a favorable economic and geopolitical position would provide the rationales for dollar diplomacy—a means of establishing some control while avoiding outright colonial possession

Whether advocating formal imperialism or rejecting it, the leading policymakers in the Roosevelt administration shaped their views of the civilizing mission within the professional-managerial outlook that envi-

sioned progress as the spread of markets and monetary exchange

through scientific application of economic laws These themes also inter-

mingled with presumably scientific thinking about gender and race No-

tions of gender and racial hierarchy would reinforce the civilizationist justifications for dollar diplomacy

The changes sweeping through American life at the turn of the century seemed to provoke widespread concern with manhood The term “manhood” should be understood as connoting neither a transhistorical,

biological essence nor a unified collection of specific traits It describes,

rather, a dynamic cultural process through which men asserted a claim to certain authority as though it had a status immutably rooted in nature In the formulation that was widespread among middle-class white men in the Victorian era, manliness emphasized strength of character, especially defined as self-control and self-mastery According to the social evolutionary doctrine of the day, humans advanced by establishing mastery over themselves and the larger environment The lack of self-discipline

and ability to plan for the future marked a lower status Thus, a worthy man had a duty to protect those who were weaker, self-indulgent, and less rational: women, children, and nonwhite races Manly restraint,

both in monetary and sexual matters, would bring capital accumulation and family (thus social) stability In this view, civilization advanced as men became more cognizant of manly duties and as gender roles di- verged to become almost mirror opposites.®

All of the rising new professions associated with turn-of-the-century

international finance were, of course, the province of men, shaping these

codes of manliness along with an expanded and rationalized international market As they imagined the gender division, femininity was associated with small-scale, face-to-face relationships, with disorganized thought and action, and with a need for supervision For these professionals, manliness (like finance) involved impersonal exchange and supervisory abilities Economic science became more and more gendered, as it embraced notions of specialization and division of labor In the emerging scientific society, it was a mark of efficiency and rationality to draw categories, delineate clear boundaries between types, accentuate functional differences and hierarchies.”

Gender distinctions had symbolic links to the emerging political econ-

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civilizing force of a gold standard, careful regulation by a national banking system, and supervised revenue collection and expenditure Civilized men conserved value by restraining and regulating use; whether the currency of potential value was semen or money, civilized men kept control of the quantities produced Manly orientations toward sexual relations and money (there was a quantity theory of both) shared discursive similarities

The economist Irving Fisher, for example, connected his economic

science to the idea that manly self-control was the prime social virtue His Introduction to Economic Science (1910) was perhaps the most influential American statement of the quantity theory of money Five years later he published a widely read manual, How to Live: Rules for Healthful Living Based on Modern Science (1915) Emphasizing control and self- control, he denounced immorality, prostitution, luxury, graft, government waste on armaments, uncontrolled immigration, eugenically un- wise reproduction patterns—along with monetary instability.°

Edward Kemmerer also exemplified this late Victorian “manly” ideal both in his professional career and in his role as international financial adviser Struggling into the ranks of middle-class professionals by working his way through college, Kemmerer had trouble reconciling the low pay of an assistant professor at Cornell with his professional status He worried that “my size and youthful appearance” would deprive him of prestige, and his early letters show considerable anxiety about how to maintain his status in the face of inflation He complained that he could afford only a “girl” rather than a “maid” for his family, worried over country club dues, and felt great financial and psychological strain from hospitalization bills when his wife had a breakdown after the birth of

their second child in 1910 Even after accepting a better paid position at

Princeton, he continued to complain about the high cost of living.!9 His conception of his own duties as a man clearly involved an income that could maintain dependents as well as nurture connections with other men in his upwardly mobile professional world Indeed, a fear of monetary inflation and its consequences for social status were general concerns among new professionals During the long deflationary spiral of the late nineteenth century, the cost of food, clothing, and housing had dropped in comparison to real wages But after the turn of the century, the inflationary environment worked in reverse, raising prices

while leaving many salaried professionals feeling a loss Although profes-

The Roosevelt Corollary and the Dominican Model of 1905 35

sors retained a fairly high economic status in the early twentieth century (roughly the top 10 percent of all families), their real income did begin to erode, and the growing gap between the professoriate and the very wealthy widened considerably This erosion of earnings helps to explain the pervasive complaints of low pay and declining economic status among professors such as Kemmerer.!! As their incomes shrank, their professional contributions nonetheless brought many of them into increasing daily contact with bankers and others of the economic elite, accentuating the disparity World War I brought even greater pressure During the war, housing costs more than doubled; a surge of inflation followed the end of wartime price controls, and advertiser-driven aspira- tions for greater consumption rose throughout the decade Kemmerer served on the Advisory Council of the Stable Money League, whose goal was “to prevent the great changes in the purchasing power of the unit of value.”12

KemmererS life-long obsession with ñghting inflation was thus closely linked to what he perceived to be the moral tenets of “manliness.” Infla-

tion, he believed, penalized hard work and savings while it rewarded

careless people who made no provisions for the future Kemmerer, his

son recalled, “was a very moral individual and he felt that inflation was

fraud by government.”!3 Just as it eroded currency values, inflation undermined class standing and duty to family He wanted to fashion a

world of stable value, one which rewatded those who saved for the

cutrent and future support of dependents To Kemmerer, as to many others of his age, manliness meant achievement, and unmanly traits derived from deficiencies in character, principally laziness and debauch- ery His science of economics and his commitment to bringing orderly financial systems to what he viewed as disorganized, profligate territories inscribed his convictions about moral behavior and its gendered assump-

tions.!4

Not surprisingly, then, Kemmerer would explicitly frame his economic advising in terms of manliness Often the only qualification he specified when seeking to hire a member of his financial missions was that he be “manly.” He consistently described good advising work as a “man-sized job,” a typical comment being “Stabilizing the Poles seems to be a man- sized job and a perpetual one.”!5 To Kemmerer, finance was truly a manly art for the upwardly mobile middle class

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many others of his day, Roosevelt co-mingled the meanings of manhood,

whiteness, and nationhood His Strenuous Life (1899) was about man-

hood and the nation’ duty to be manly One of his most famous speeches,

“National Duties,” was about “the essential manliness of the American

character.” Roosevelt explained that “exactly as each man, while doing first his duty to his wife and the children within his home, must yet, if he hopes to amount to much, strive mightily in the world outside his home,

so our nation, while first of all seeing to its own domestic well-being,

must not shrink from playing its part among the great nations without.”!6 By using such domestic metaphors, Roosevelt made international

involvements seem more familiar and natural He wrote, “man must be

glad to do a man’s work, to dare and endure and to labor; to keep himself, and to keep those dependent upon him As it is with the individual, so it is with the nation.”!” Nations, like men, had duties to perform

Although many middle-class men, or aspirants to that status, per- formed and perpetuated this particular discourse of manhood well past the Victorian age, some significant reformulations emerged during the late nineteenth century The new immigration, the New Woman, the

growth of professions and office work, and a perception of decline in

economic predictability and in professional wages all challenged middle- class male identity and authority Claims that manhood was in decline became pervasive as doctors developed heightened concerns about male homosexuality, worried about male effeminacy, and warned about growing neurasthenia (nervous strain) in men These concerns gave rise to a relatively new word—masculinity—which gained sudden popularity and had slightly different connotations than manliness.18

Neurasthenia was an illness that George M Beard, in his American

Nervousness (1881), had defined as “nervelessness—a lack of nerve

force.” Beard traced the condition to the stresses of overcivilization— men were becoming weak and sickly by depleting their nerve force Nerve force could be depleted by masturbation, a moral problem that

Beard believed sapped masculine energy, but the disease also could stem from the cultural problem of modern civilization, as it was common

among white men who did “brain work.” The neurasthenic man, ex-

hausted by the demands of ambition, achievement, and work, was re-

treating into passivity and invalidism—in effect, into the feminine realm.!° Beard’s notion that modern life brought rampant neurasthenia in

men was akin to the thinking of Georg Simmel, who also had pointed to

>

a “secret restlessness,” “an increase in nervous life” emerging from the speed and diversity of professional life It originated in “that increasing distance from nature and that particularly abstract existence that urban life, based on the money economy, has forced upon us.” This form of

neurasthenia was a male problem because, in Beard’s and Simmel’s views,

women were less evolved, less differentiated and complex That the most advanced of the species were afflicted by nervous disorders, according to Beard, portended the decline of civilization generally Capitalist civilization, according to this view, was creating the seeds of its own destruction because of the enervating demands of an exchange economy

Roosevelt was very much influenced by the popularization of George Beard’s theories His own sickly childhood, of course, made him especially susceptible to worries about a decline of vigor and life-force

Rather than despair about the future of civilization, however, Roosevelt

embraced the ideas of G Stanley Hall, who advocated countering “overcivilization” in men by restoring an element of primitivism Hall developed the idea that primitivism was not so much the opposite of civilization as its precursor Primitivism was a stage through which healthy, civilized adult males needed to pass in accordance with the scientific principle that the human male developed in stages that recapitulated the evolution of the species (ontogeny recapitulates phylogeny) Claiming that young boys at the onset of puberty would need to recapitulate their ancestral heritage, Hall developed Boy Scout rituals to assist the healthy passage through “savagery."?! As such notions became popularized, the fears of male decline spurred a new fascination with potency, as com- mentators called for vigorous sports, muscularity, and military assertion Jack London’s Call of the Wild both reflected and helped structure the

new view that, underneath the layers of civilization, men were healthiest

when able to express their natural instincts.22 Theodore Roosevelt became the very embodiment of these antidotes to overcivilization, con- structing his vision of vigorous manhood through an identification with the legendary West

Concerns about declining manhood and the need to restore a measure of the primitive were thoroughly intertwined with ideas about race No-

tions of civilization were frequently invoked to tie male power to ideas of

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The fear of neurasthenia raised a related concern over “race suicide.” In the United States during the late nineteenth century, writers and speakers such as Josiah Strong, John Fiske, and others popularized Social

Darwinist ideas that portrayed races as nearly distinct species in competition with each other for survival.” In this competition for survival,

vigorous manhood was essential Overcivilized effeminacy would lead to a falling birth rate and racial decline Roosevelt, the advocate for the “strenuous life,” helped popularize the problem of race suicide, calling it the most important question facing the country He used his “bully pul- pit” of the presidency to preach that a person who avoided having children was “in effect a criminal against the race.” Within his frequent paeans to motherhood and large families, Roosevelt implicitly celebrated male passion and sexuality, breaking from Victorian conventions by making these antonyms of self-restraint more respectable, even attributes of public pride.*5

But Roosevelt was concerned with enhancing the quality as well as the quantity of the white race He gloried in the stories of the West, as heroes achieved both manhood and race progress in kill-or-be-killed competi- tions with Indians and nature.?6 And he shaped his four-volume history, Winning of the West, in these terms It portrayed how an American nation and a distinctive American race were forged from a mass of disparate European immigrants by a frontier war against Indians By celebrating the defeat of primitives, even on their own ground, Roosevelt echoed some of Hall’s ideas (as did the Buffalo Bill Wild West Shows popular at the same time): having been tested in primitive competition, the manly

American race could now put its adolescence behind it and move ahead

to take up the task of civilizing less mature races Later, in his accounts of his celebrated Battle of San Juan Hill in the Spanish American War, race again functioned as the crucible of male-coded nationhood Roosevelt's influential and popularized historical accounts set out to prove that the United States sprang from both vigorous manhood and racial supe-

Tiority.?

Although prominent discourses of race drew upon the contemporary science of biological difference and competition, they also drew upon a Lamarckian view of culture: that cultural change would become cumula- tively embedded in biological heritage In the Lamarckian view, inferior races could become uplifted over time by culturally improving the char-

acter traits of individual men and women This view, which was scien-

tifically discredited by genetics early in the century, continued to echo in

popular expressions and provided justification for imperial missions In

popular presentations of race throughout the early twentieth century,

such as those constructed in museums and world fairs, entire racial

groups were given attributes of age: whites were represented as adults (male, of course); nonwhite races were children who needed discipline and education G Stanley Hall, who had developed the idea of adolescence in people, also advanced this notion of adolescent races In 1910 Hall helped begin the Journal of Race Development, which promised to explore “the general subject of the control of dependencies.”?6

Within this metaphor of age, the mission of adult races or nations needed no elaboration or justification Kemmerer, after his stint as chief of the currency in the Philippines, for example, returned to Cornell University and in 1907 delivered a lecture on the lessons of his experience before the American Academy of Political and Social Sciences in New York He explained that three centuries of Spanish rule had “developed children, not independent self-reliant men.” Filipinos “have yet to learn the lessons of political honesty, of thrift, and of self-reliance,” and before achieving self-government had to embark upon “the development of these sturdy moral virtues.” The speech provoked a “storm of protest”

from Filipino students studying at Cornell.?9 ,

Roosevelt brilliantly molded all of these associations of manliness, whiteness, adulthood, and nationhood into a powerful projection of the civilizing mission In his person he embodied the two (somewhat contra- dictory) models of manhood: civilized manliness (representing duty and self-mastery) and primitive masculinity (representing primitive urge to-

ward assertiveness, spontaneity, and battle) As a young president at the start of a new century, he persuasively claimed these attributes not just

for himself but for the white American race in its relationship to the world The Roosevelt Corollary reflected this mix of manly duty, masculine threat of force, and the white race's destiny to organize and uplift child-like races

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the power of the executive branch, while new civil service requirements, organizational specialization, and a stronger navy made it operate more

effectively A proponent of expertise and the cult of efficiency, Roosevelt also advanced the professional-managerial faith in the civilizing power of monetary exchange and envisioned a strong working relationship between government and large, efficient businesses to transform backward groups, whether at home or abroad The modern presidency, he believed, should be an activist office, mobilizing public and the private sectors to operate on behalf of an expansive view of the public good.3°

To Roosevelt, a strong navy was essential Influenced by Alfred Thayer Mahans geopolitical theory of sea power, the Roosevelt administration determined to accumulate bases and secure sea lanes Building the Pan- ama Canal became the centerpiece of this “big navy” strategy, because it facilitated a two-ocean commercial and military posture Military capa-

bilities attained by a canal and surrounding bases would help secure the

growing international economic stake of the United States, and enlarging economic ties would, in turn, improve its strategic position The objective of securing the region around the Canal would lead directly to the Roosevelt Corollary to the Monroe Doctrine and mark a major turning point in U.S relations with countries bordering the Caribbean The

Caribbean, Roosevelt and his strategists concluded, should become an

“American lake.”3!

Blending its cultural (including gender and racial) assumptions, its economic and strategic justifications, and a new executive branch activism, the Roosevelt administration constructed a foreign policy that was both assertive and restrained, both imperialist and anti-imperialist Throughout the world, in Roosevelt's view, the United States should help maintain a balance of power in which virile, advanced nations would amiably share the tasks of civilizing disorderly states Europe and Japan

would have predominant interests in Africa and Asia; the United States

would police and uplift the western hemisphere But it would assert this power through formulas other than forcibly seizing colonies

The Venezuelan crisis of 1902 helped define Roosevelt's approach and prompted the formulation of his Roosevelt Corollary In Venezuela, European intervention over defaulted debts provoked difficulties The global economic depression of the mid-1890s, which had been preceded by a tremendous volume of Latin American borrowing in European markets, had brought widespread defaults throughout the area and made

financial irresponsibility a major diplomatic concern As Roosevelt saw it, European gunboats sent against Venezuela diminished the prestige of

‘the Monroe Doctrine Moreover, the Hague Court decision that helped

resolve Venezuela's dispute with England and Germany implied prefer-

ential treatment in debt settlement to states that used armed force, a

precedent that, Roosevelt feared, might encourage more European military interventions against defaulted states in the Western hemisphere

In his Corollary to the Monroe Doctrine (1904), Roosevelt stated that when nations of the Western hemisphere conducted their economic affairs irresponsibly enough to raise the possibility of European intervention, the United States would assume the role of an “international police power.”33 Roosevelt wrote privately to his son that the United States “should assume an attitude of protection and regulation in regard to all

these little states in the neighborhood of the Caribbean.”3+ The doctrine

blended discourses about manhood, race, adulthood, managerial expertise, and national interest into a program for spreading civilization The Dominican Model

It was initially unclear how Roosevelt planned to implement the Corol- lary Widespread anti-imperial sentiments prevented acquisition of new colonies Cuba and Panama provided models of protectorates—that is,

nations bound by treaty obligations to be “protected” by the United States from external threats or internal disorder—but Congress and the

public were reluctant to acquire more protectorates In 1904 the Domini- can Republic became, in effect, a laboratory for working out the question

of how other forms of dependency might be devised

The governments of both the United States and the Dominican Re- public, for different reasons, saw advantages in developing a supervisory- dependent relationship between the two countries The Dominican Re- public became the first of what might be called dollar diplomacy

dependencies (others would be Nicaragua, Liberia, and Haiti) Here, the

term “dependency” is not used to invoke the tradition of “dependency

scholarship,” a framework often used during the 1960s and 1970s to

interpret United States-Latin American relations, but simply to signify the status of a country that was not a political colony or protectorate of the United States, yet was bound to it by specific, contractual bonds of

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Deeply in debt to European bondholders and threatened by European

warships, the Dominican Republic in 1904, with its harbor at Samana

Bay and its proximity to the Panama Canal, seemed of strategic importance to President Roosevelt The credibility of the Roosevelt Corollary also appeared to rest on how the United States would handle the Domini- can case Although Roosevelt would later claim to Congress that he had

to act because European intervention was imminent, Europeans were

probably less eager to intervene themselves than to force action by the United States on their behalf If European governments were to live with

the Caribbean as a U.S sphere of influence, then they wanted assurance

that the United States would uphold what they perceived as their legiti-

mate interests in the area As Roosevelt told the Senate in 1905, U.S

handling of the Dominican crisis afforded “a practical test of the efficiency of the United States Government in maintaining the Monroe Doc-

trine.”3

The Dominican government, eager to protect itself from both internal and external foes, had been encouraging U.S overtures A private U.S company, the Santo Domingo Improvement Company, had already gained a prominent place in Dominican economic and political life The

Dominican President, Ulises Heureaux, had strengthened his ties with

the company, seeing it as a counterweight to European financial interests and as a possible entry to political influence in Washington, where trade and tariff policies could substantially affect his and his country’s fortunes After 1892 the company bought the debt that the Dominican government owed to a Dutch company, floated new loans to European creditors, and took over customs collection as a means of repaying it

The company remained beholden to Heureaux, however, and never ex-

erted effective control over Dominican revenue In the aftermath of the

War of 1898 and President Heureaux’s assassination in 1899, U.S eco-

nomic policies began to favor Cuba, the new sugar-growing protectorate, to the detriment of the Dominican Republic Consequently, the Domini-

can government grew ever more worried about its economic fortunes,

particularly its sugar industry, and courted U.S favor Dominican officials recognized that new loans and a closer relationship with the U.S government could arrest the country’s slide toward bankruptcy, alleviate the demands of European creditors, solidify the export sector, and en-

hance their political position vis-a-vis their internal opposition by bringing in new money.36

Believing that the Santo Domingo Improvement Company had only

contributed to instability in Dominican finance, in 1904 Roosevelt sent

Assistant Secretary of State Francis B Loomis to Santo Domingo to dis- cuss the possibility of instituting an outright U.S protectorate with control over currency and revenue A protectorate on the Cuban model, however, quickly seemed just as inadvisable as colonialism itself In fact, observers reported that rumors of protectorate status for the Dominican Republic were generating such resistance against its government that

further action would result in more, not less, instability37 How could a

dependency relationship that would stave off bankruptcy and political turmoil be established without offending those in both countries who objected to imperialism?

In devising what policymakers would subsequently view as the Do-

minican model of rehabilitation, the State Department turned to invest-

ment bankers and to Jacob Hollander, the financial expert who had

guided the gold-standard currency reform in Puerto Rico The Domini- can model became the first major effort to forge the kind of partnership that would continue to be at the heart of dollar diplomacy: a trian- gular relationship among financial advisers wishing to practice their new profession of fiscal rehabilitation of foreign countries; investment bankers seeking higher interest rates in foreign markets; and activist governmental officials eager to assert international influence.?* These were the groups that had come together in the 1890s to mobilize support behind the gold standard both at home and abroad

Between 1904 and 1907, U.S emissaries incrementally pieced together a plan for rehabilitating the Dominican Republic In the spring of 1904,

the new U.S minister, Thomas C Dawson, a veteran of the diplomatic

service in Brazil and author of a two-volume history of South America, reported that fiscal insolvency was the basis of the endemic political disorder He recommended “a radical change in the system of collecting revenue and a great reduction in current expenditure.”39 The Dominican government requested readjustment of the country’s current outstanding debt so that bankruptcy and intervention could be avoided.#? Dawson worked out a protocol that reflected both of these goals: the U.S government would take over collection of Dominican customs, applying up to

55% of the receipts to debt service; it would also review the internal and

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Domini-44 Financial Missionaries to the World

can government to allow the United States to “establish an orderly and businesslike administration” through the protocol, the Secretary of State ordered a visit by naval commander Albert C Dillingham.+*! In the mean- time, the Dominican government officially established a gold standard, based on the U.S gold dollar, to facilitate the proposed reforms.*?

When Roosevelt took Dawson's protocol to the Senate for ratification, he hit a roadblock The president appealed to senators to uphold the credibility of the Monroe Doctrine, do a service to humanity, and increase “the sphere in which peaceful measures for the settlement of international difficulties gradually displace those of a warlike character.”#3 But many senators questioned the idea that the U.S government could bind itself to refund private debts Sufficient support for the protocol seemed so unlikely that the measure was not brought up for vote

The president who had bragged about taking the canal while con- gresses debated remained undeterred Feminizing his opponents as prat- tling pacifists, proponents of inefficiency, and reactionaries, Roosevelt simply took over Dominican customs collection without the consent of

Congress He encouraged the Dominican president, who was increas-

ingly desperate about his empty treasury and eroding power base, to issue by decree a modus vivendi under which the U.S government was invited to assume control of the customs houses A retired army colonel and veteran of the colonial customs service in the Philippines took over as General Receiver of customs Roosevelt claimed that these measures were only temporary stopgaps until Congress formally consented to the protocol “The Constitution,” Roosevelt explained, “did not explicitly give me the power to bring about the necessary agreement with Santo Domingo But the Constitution did not forbid me.”**

Meanwhile, he forged ahead to resolve the issue of Dominican debt,

instructing Hollander to continue working with private bankers on a refunding plan Who employed Hollander was not entirely clear He was paid $1,000 a month by the U.S government but also received the huge sum of $100,000 from the bankrupt Dominican treasury, a questionable

arrangement that prompted a congréssional investigation when it was

discovered three years later.*5

Roosevelt's announcement of a “fiscal protectorate” formed by the modus vivendi prompted some criticism, especially among Southern Democrats Senator Augustus Bacon of Georgia charged that the action

eclipsed the “advise and consent” clause of the Constitution, and he

warned about the growth of executive power.** Isador Raynor of Mary- land admonished that Roosevelt's new Corollary was “strictly a financial

doctrine” to support those who “look upon national misfortunes as so

much merchandise,” and would auction the liberties of mankind to the

highest bidder He claimed that it disgraced the spirit of the original

Monroe Doctrine, and he demanded to know “under what clause of the

Constitution we derive the right to act as receivers and take possession of the custom-houses of other countries? The flag does not follow a contract.”*” In newspapers, opposing editorials frequently stressed the

dangers of trying to arrange the affairs of “black republics.” The New

York World expressed fear that the receivership would be the first step in a hemisphere-wide policy that raised the horrible prospect of keeping “order among nearly sixty million people, of mixed Spanish, Portuguese, Indian, and negro blood, divided among twenty sham republics which have had at least three hundred revolutions in eighty years.”**

On the whole, however, anti-imperialist opposition was muted be-

cause Roosevelt's plan itself could be cast as anti-imperial: extending assistance without annexation The Philadelphia Ledger greeted the plan with the notice that “President Roosevelt has undertaken to give the island of Santo Domingo an honest government, economically administered Philadelphia next!”*9 Even traditionally anti-imperialist papers often presented the move as benevolent and progressive, as the United

States sought no territory nor protectorate treaty The strong antibanking

discourses that would later be mobilized against international lending with governmental supervision were only beginning to appear

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encouragement, Hollander finally obtained Kuhn, Loeb, and CompanyS cooperation and worked out an adjustment of past debts with the Protec- tive Committee of Bondholders in Antwerp and others.>!

During the course of these negotiations in 1906, Hollander put together a plan involving two separate documents One was a convention between the U.S government and the Dominican Republic, under which

Dominican customs houses would be administered by a U.S receiver appointed by the president of the United States (but paid as an employee

of the Dominican Republic) This part was, in effect, already operating The convention would stipulate additionally that the public debt of the Dominican Republic could not be increased without consent of the president of the United States The second document was a loan contract between the Dominican government and the investment banking house

of Kuhn, Loeb The bankers offered to handle $20 million in 50-year

bonds carrying a relatively high rate of interest (5%) This loan was conditioned upon the ratification of the convention that guaranteed servic- ing by U.S government collectors Morton Trust Company, for which Root had previously served as counsel anid Conant as Treasurer, became the fiscal agent and depository for the repayments The Senate quickly

ratified the convention in 1907 by a 43 to 19 vote because, unlike the

previous protocol, it committed the United States only to collecting and administering the debt, not to adjusting or assuming it The bankers, in

parallel action, signed the loan contract.52

The convention and the contract were interdependent documents The Dominican government accepted the foreign receivership in order to get the loan; the bankers extended the loan only because the conven-

tion’s guarantee of government involvement minimized the risk; and

policymakers used the loan to force the type of financial rehabilitation

they felt would advance U.S interests in the Caribbean This model of government-bank cooperation, using what would be called a “controlled loan” brokered by a professional consultant in international finance, seemed to offer the possibility of guiding a dependent state through a

process of fiscal reform without the United States having to assume the

burdens and risks of political sovereignty It became central to the process that, under President Taft, would be called “dollar diplomacy.”

In one sense the Dominican loan and receivership plan was a novel turn in the conduct of U.S foreign policy; in another sense, it was just an extension of some current practices Bond issues that imposed substan-

tial supervisory obligations on the borrower were widely used both in the domestic financing of corporations and by European governments in their relations with some foreign states The Dominican model, linking a

U.S government-run receivership to Kuhn, Loeb’s bond issue, evolved

within this broader context The structure of investment banking in the United States, together with contemporary European practice, provide significant background for understanding the origins of dollar diplomacy

Development of Investment Banking

During the late nineteenth century, the United States experienced dra- matic changes in its political economy Three of these were particularly relevant to dollar diplomacy: the development of investment banking and a bond market; the trend toward “managerial capitalism”; and government’s reliance on the mobilization of capital by private financiers

Modern investment banking in the United States grew in association with railroad financing Jay Cooke, who had mass-marketed government bonds during the Civil War, formed the first syndicate of eight financial houses to underwrite Pennsylvania Railroad bonds in 1870 A year later, the new firm of Drexel, Morgan, and Company took over Pennsylvania's

account, and together, the financial managers of the railroad and the

investment bank refined techniques of raising money Selling $87 million dollars worth of securities between 1869 and 1873, the Pennsylvania

system raised more money faster than any U.S business had ever done.”

Other investment banking houses quickly joined Morgan in the

scramble to provide railroad financing Capital markets gradually be-

came centralized in New York around a number of strong houses, including J P Morgan, Kuhn Loeb, J and W Seligman, Speyer, and Kidder Peabody Kuhn, Loeb became the principal banker of the Pennsylvania Railroad in 1880; in 1895 it allied with National City bank to reorganize the Union Pacific By 1910 Kuhn, Loeb had become the leading specialist in railroad securities, handling issues for at least ten major domestic railroads.*

Financial markets in the United States grew rapidly during the late

nineteenth and early twentieth centuries, and the demand for credit

burgeoned regardless of business conditions During depressions, large

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de-faulted debt; during economic upswings investment houses provided capital for expansion At the same time, more money seemed available for investment Banking and insurance assets more than doubled during the first decade of the twentieth century; country banks in the Midwest and West began to interest themselves in investments other than farm

loans; and the number of individual investors grew rapidly Investment

bankers both responded to and cultivated the new interest among small investors, developing networks of brokers through which to sell bond issues directly to the public.>> '

The profits to be realized in arranging and selling bonds were substantial Because bankers and brokers earned profits as a percentage of bonds sold, promoters expanded the market steadily, bringing out issues as large and as fast as buyers might absorb Partly instigated by financiers

and speculators, an industrial merger movement swept the country; the

creation of new holding companies layered new debt on top of old In 1898 and 1899 total capital issues far outstripped any previous amounts By 1900 virtually all railroads and many of the largest industrial corporations looked to their relationship with particular investment bankers to fulfill long-term capital needs by brokering securities to the public.5 During the first decade of the twentieth century, although railroad secu- ities still dominated exchanges, industrial and utility bonds steadily increased in importance Deal-makers also began diversifying into foreign bonds

The mature infrastructure and robust growth of financial markets in the United States began to establish New York as an international as well as domestic money power Although the United States remained, on

balance, a debtor nation until World War I, its status as a leader in world

markets was changing U.S bankers extended huge loans to Canada after 1879; J Pierpont Morgan became co-manager of its first major interna-

tional loan in 1899 (to Mexico) In 1900 Kuhn, Loeb and National City

Bank underwrote an issue of German imperial bonds; the government of

Sweden issued bonds through Kuhn, Loeb in 1904; and a syndicate

headed by this firm distributed $75 million of Japanese war bonds in 1905 The financial strength of U.S banks got instant global recogni- tion when J P Morgan and others extended large loans to Britain during the Boer War, thus becoming creditors to Europe’s own leading creditor nation Significantly, these large foreign issues were often dramatically

oversubscribed The Mexican bonds of 1899, for example, sold so fast

that Morgan believed twice the amount could have been placed in the U.S market The Japanese loan attracted applications amounting to $500 million for a $75 million issue Clearly, there was a ready market for solid foreign loans, and investment bankers were eager to develop such business, both because of its profitability and because of the considerable prestige it conferred.%”

These early foreign loans were largely detached from the political concerns and processes of the U.S government In this sense, they were not examples of dollar diplomacy But they whetted bankers’ appetites for more foreign business and convinced the U.S bond-buying public that foreign issues could be viable investments It was just after the Japanese war loan of 1905 that Kuhn, Loeb agreed to the Dominican issue

Interest in foreign bonds especially increased after 1903, as the issuance of domestic industrial securities began to slump The decade-long

gush of industrial bonds was slowing for a variety of reasons Some of the

new consolidations clearly had poor performance records Moreover, a court decision in the Northern States Securities case suggested that the Sherman Antitrust Act might be applied to industrial holding compa-

nies Kuhn, Loeb, for example, had undertaken to finance a $500 million

merger of the giant meat-packing companies into a single holding company but backed out by 1903, worried about possible legal antitrust action by government and apparent market saturation by the industry

The general convergence and decline of interest rates domestically also helped to stimulate interest in higher-yield foreign bonds Nine- teenth-century capital markets had been largely segmented and dominated by large regional banking institutions In the late nineteenth and early twentieth centuries, however, institutional changes brought rapid integration of regional capital markets, contributing to a greater convergence in interest rates nationally and to the primacy of New York as the major capital center At the same time, the growth of correspondent banking and the rapid increase in the number of state banks brought greater competition to the banking industry and exerted a downward

pressure on interest rates.5° Uncertainty over domestic issues and declin-

ing interest rates, combined with the promotional mentality by now en-

trenched within investment banking and brokerage houses and a strong

international economic upturn from 1903 to 1906, provided optimal conditions for a surge of interest in the bonds of foreign governments

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trend that Alfred Chandler called “managerial capitalism” was another important contributor to the policy of dollar diplomacy Increasingly, most investment banking houses became involved in the management of the companies they served Such an interest was hardly surprising, given the prestige and money that was at stake in underwriting a large railroad or industrial bond issue Financier-dominated boards of directors began to wield their influence in selecting professional managers to su-

pervise corporate operations and by demanding more centralized operat-

ing structures Sometimes investment bankers even stipulated the specific expenditures that they would allow for money raised in bond issues They nearly always assumed power to vote the majority of the stock for a period of years.©

In short, investment bankers during the last decades of the nineteenth century were gaining experience not only in organizing financial resources but in providing managerial guidance as well Even before ven- turing abroad, they had developed a variety of ways to assume opera- tional oversight over clients, if their assessment of the financial risk seemed to warrant such control This managerial capitalism reinforced

the professional-managerial orientation of the economic professionals

and offered the relevant structures for dollar diplomacy’s exchange of loans for some degree of administrative control

The patterns emerging in large-scale domestic finance, then, bore

close similarity to those that would soon characterize dollar diplomacy

The sequence of events was the same: financial reorganization (perhaps managed through a receivership); increased working capital through bond issues that exceeded the refinanced obligations; establishment of

fiscal oversight; centralization and rationalization of operations Just as

bankers and railroad officials alike encouraged visible ties between them to improve investors’ perceptions about the quality of the securities, so bankrupt foreign governments would often willingly seek an investment banking partner for the same practical reason Dollar diplomacy was managerial capitalism taken offshore

But there were two great differences between managerial capitalism at home and dollar diplomacy abroad In dollar diplomacy, investment bankers were dealing not with companies that had stockholders but with countries that had citizens To prescribe for the latter in the same manner

as for the former was bound to be troublesome Corporations, after all,

existed primarily to make profit; governments existed for other pur-

posés, including the supervision of some kind of social order The appro- priateness of shaping a governmental structure by adapting corporate techniques and priorities would lie at the heart of debates over dollar diplomacy in the decades to come Moreover, the U.S government played a major role in foreign debt reorganizations, bond issues, and customs receiverships Although government was not entirely absent on the domestic front, as the growing importance of the Interstate Commerce Commission in rate-setting illustrated, government officials actually co- ordinated and, in the Dominican Republic’s prototype of dollar diplomacy, essentially guaranteed (through collectors) the payment of loans

Governmental officials, in effect, called on bankers to take care of things

that they wanted done but had neither the legal capacity nor domestic political support to do.®!

Asking investment bankers to fulfill commitments the U.S govern-

ment had made under the Monroe Doctrine was, in a way, hardly surprising Even in the domestic economy, relatively weak government structures often turned to the more powerful business sector to carry out broad public policies A domestic counterpart to the government's turn-

ing to Kuhn, Loeb to secure the Dominican Republic might be its turning

to J P Morgan to guide domestic economic policy through the panic of 1907 ,

Throughout 1906 and 1907, financial leaders increasingly worried

that excessive speculation, financial abuses, and an inflexible banking

and currency system might provoke a crisis in the securities markets A ten-month decline in stock prices in 1907 broke into a panic when

one trust company suspended payments, and runs on other institutions

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strong state that many business and government elites increasingly con-

sidered necessary for an advanced industrial civilization, and it provoked

new agitation to create a central banking system based on some mixture of public and private authority.© Such a structure, which could provide currency elasticity and regulate private banks, would be established as the Federal Reserve System in 1913 The professional-managerial discourse, emphasizing the need for stable currency and regulatory procedures, was reshaping the domestic political economy even as it shaped the activities of America’s foreign financial advisers and its policy toward the Dominican Republic

The Roosevelt Corollary and loan-plus-receivership plan for the Do- minican Republic, then, were parts of a broader trend of public-private cooperation This trend gained momentum as the nineteenth-century tradition of limited government confronted twentieth-century aspira- tions to world power To establish credibility for the Roosevelt Corollary while avoiding the charge of engaging in territorial imperialism, government officials formed partnerships with bankers and professional economists

International Precedents for Fiscal Control

Just as domestic developments helped set the stage for Hollander’s or-

chestration of the Dominican loan, so did the international context

British and French financiers had long been extending foreign loans, and both countries had already wrestled with how to reconcile private loans and public policy Indeed, as Herbert Feis concluded in his study of

European international finance between 1870 and 1914: “the official

circles of lending countries gradually came to envisage the foreign investments of their citizens, not just as private financial transactions, but as one of the instruments through which national destiny was achieved Financial force was often used to build political friendship or alli- ance, was often lent or withheld in accordance with political calcula- tions.” The movement toward dollar diplomacy in the United States represented a similar process, beginning a few decades later and therefore with some models and techniques already established

The relationship between governmental policy and international lenders in Britain during the late nineteenth century bears some similarity to

the policies that Roosevelt and Taft envisioned In theory, the British

government tried to treat financial institutions as separate, independent powers rather than subordinate ones, and to maintain a firm line between public policy and private lenders, between politics and markets

When government officials dealt with nonindustrialized, potentially de-

pendent nations, however, this policy toward capital flows seldom prevailed Informal communication between policymakers and financiers, which often took place in one and the same tightly knit social circle,

fostered harmony of action In relations with dependent areas, “gov-

ernment stepped to the fore, strove with, by, and for British private

groups "+

In cases of default on private loans, the British government usually moved forcefully and directly, especially if larger strategic interests were involved In some Latin American states the British ministers or consuls were authorized to act as agents for bond-holders In 1892 military force was dispatched to Venezuela to expedite collection In China, Turkey, Greece, and elsewhere the British government helped create international debt administrations to collect revenue and administer payments to creditors And disturbances following the default in Egypt prompted Britain to seize direct control of governance This array of responses during the late nineteenth century would have rough analogies in U.S policy during the early twentieth century (The U.S government's ac-

tions, however, were seldom in response to default on American loans,

which were as yet meager in amount, but taken to forestall difficulties over debts owed to Europeans.)

Egypt provided a case of governmental action by Great Britain to which early-twentieth-century U.S policymakers often referred admir- ingly After carrying out currency reform in the Philippines, for example, Edwin Kemmerer received a government-paid assignment as Special Commissioner to Egypt to made a study of the banking structures that Britain was developing there Roosevelt himself considered Egypt a model of progressive colonialism Minister Dawson in the Dominican Republic referred pointedly to the Egyptian precedent In devising the initial 1905 protocol, he recommended a clause that would open a door “to a real superintendence of all administrative matters like that of

similar clauses in the financial agreements to which the Government of Egypt is a party.”6 Egypt, like the Caribbean states, occupied a strategic

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In 1876, deeply in debt and fearing foreign intervention, Egypt had accepted a commission composed of representatives of the French, Brit- ish, Austrian, and Italian governments to control pledged revenues This commission consolidated and refinanced Egypt’s debt, controlled future

borrowing, and had jurisdiction over certain revenue sources French

and British controllers supervised the treasury, and foreign commissions managed railways and the port of Alexandria This extensive foreign administration did not, however, remedy the problems of insolvency and political discontent In fact, the changes pressed by the foreign agencies only aggravated instabilities by raising continual disputes over authority between Egyptians and foreigners and by fanning popular resentments When massive antiforeign demonstrations erupted in Alexandria and Europeans were killed, British military forces seized control

In 1883 Lord Cromer had become the effective governor of Egypt, and a British financial adviser took over all governmental operations De- spite bitter disputes with French creditors backed by their government, Britain’s rule slowly improved Egypt's finances By World War I, the British administration had eliminated the international receivership (and

French influence), reduced the foreign debt, and attracted new investment To American observers interested in financial rehabilitation, Brit-

ish control had brought the kind of success they wished to achieve within their special sphere of interest.67

In the case of the Dominican Republic, however, Egypt might have been as much an example to avoid as one to emulate U.S policymakers sought to solve the problem of Dominican insolvency by introducing financial control in order to prevent, not to initiate, military action or colonial takeover Actually, as happened in Egypt, the policy of financial rehabilitation would end up turning into military occupation and outright governance in the Dominican Republic after 1916, but this had not been Roosevelt's intention Other nations—Turkey and Greece, for example—exemplified processes more akin to what U.S policymakers initially envisioned in dollar diplomacy; that is, the benefits of financial control without the burdens of military occupation

International control over Turkish finance, devised by European pow-

ers meeting in Berlin after Turkey's default in 1876, had begun in 1881 In exchange for a reduction of principal and interest on its foreign debt, Turkey accepted a seven-member international Debt Administration that

collected all revenues pledged for debt service As new debts were con-

tracted in the following decades and more and more revenue assigned, the Debt Administration’s power grew, and by World War I foreign officials became major power brokers and organizers of Turkey's national life.8

Similarly, in Greece in 1898 a Law of Control had transferred authority over revenues pledged to defaulted loans to a six-member international commission The commission, in turn, hired a Greek-statied agency to

collect the appropriate excise taxes and customs duties, restricted the Greek government’s borrowing capacity, tightened the paper currency

system, and revamped financial administration The Greek government accepted the control reluctantly, but the measures did improve the country’s credit rating and borrowing capacity.® As in Egypt and Turkey, foreign economic administrators seemed the key to economic stability, at least in the short run

In none of these countries was the United States involved as a principal, but these examples are important to the background of dollar diplomacy Americans did not invent controlled loans; they only adapted them to the Western hemisphere and then, as their country’s economic power grew, elevated the concept into a general approach applicable elsewhere as well In a broad sense, the United States at the turn of the century was

devising policies similar to those of the European powers From the last

quarter of the nineteenth century, concludes Karl Erich Born in his massive history of global investment banking, governments of all capital exporting countries tried “to turn the export of capital to good use in their pursuit of foreign policy objectives,” and “banks in turn wanted their governments political backing for their foreign transactions.”” The

United States, in this period, did not make nearly as full a connection

between loans and foreign policy as Europe had done; U.S government evinced little interest in most loans and had no bond-holders’ protective council with which it worked.7! Nevertheless, by developing a category of clearly political loans, the United States was moving in the direction mapped by major imperial nations, even though many citizens persisted in viewing their own country’s actions as anti-imperial and its own foreign policies as different from European practices

Given the context of U.S investment banking at the turn of the century and the force of European example in other parts of the world, Holiander’s formula for rehabilitation in the Dominican Republic hardly

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U.S foreign policy, and it is important to elaborate further on the implications of this initial move toward dollar diplomacy

Fiscal Control through Public-Private Partnership

The Dominican model provided a compromise between the ideal of limited government and the need for structures that would secure and “civ-

ilize” the sphere of interest proclaimed in the Roosevelt Corollary to the

Monroe Doctrine The basic formula of dollar diplomacy involved three groups First were the investment bankers, seeking new bond issues with higher rates of interest and willing to sponsor a loan that both paid off old bonds and added new money for domestic improvements On the government side were officials who wanted the United States to domi- nate the area; they promised to establish a receivership that would over-

see the fiscal affairs of a bankrupt government and remit regular re-

payments on the loan Finally, professionals who had already gained financial experience in U.S colonies oversaw the financial rehabilita-

tion, including debt renegotiation, more effective revenue collection, and

gold-standard currency reform Of course, cooperation or acquiescence by the foreign government was also required A foreign government escaped the strategic and economic uncertainties of bankruptcy and expected to solidify its own governing power by uniting with a powerful and capital-rich protector For all, managerial capitalism provided a framework for action

This early example of dollar diplomacy was not a case of private inter-

ests asking the government to assist them in maintaining or procuring

economic favors In fact, Hollander pointedly criticized the U.S interests that had been previously involved in loaning and collecting customs in the Dominican Republic His deal linking Kuhn, Loeb with U.S government-appointed receivers was partly an effort to replace the U.S interests which Hollander considered irresponsible and rapacious with more en-

lightened ones Indeed, previous U.S lenders protested that Hollander

undervalued their outstanding bonds in the refunding agreement.”2 The

original Dominican fiscal protectorate, then, was not a rescue mission for

US capitalists already on the island Like domestic urban progressivism,

dollar diplomacy emerged within a rhetoric of reform, replacing graft with efficiency and substituting corrupt interests with government-di-

rected public purpose

The Dominican deal was the expression of an emerging corporatist or- det, shaped within the professional-managerial discourse about spreading civilization The private contract that evolved out of Hollander’s negotiation was the culmination of public policy rather than the result of private market negotiations between lenders and borrowers Without governmental encouragement, the loan would never have happened—a circumstance that alone made the Dominican deal different from the U.S foreign lending that had historically preceded it Similarly, U.S governmental administrators could not have been introduced into the Domini- can Republic solely by the State Department's efforts; the involvement of private lenders was a crucial part of the deal Public and private sectors, then, blurred The new corporatist order aimed to blend efficient and responsible big business interests with government-led public purpose in ways that would presumably be mutually advantageous.?

Such cooperation did not emerge smoothly, however, whether in dollar diplomacy or in other areas of U.S life Partly, the deal raised rivalries among businesses themselves How, after all, were governmental officials

to pick a business partner? And why should other private competitors

accept their choice? In the Dominican case, rival investment bankers

discovered that Kuhn, Loeb had been handed a bond issue that carried a

relatively high rate of interest at little risk, given the unprecedented governmental oversight that virtually guaranteed repayment Immedi- ately after the closure of the deal, James Speyer of Speyer and Company (which had handled bonds issued by the Cuban protectorate government) protested vigorously, first to the secretary of state and then to the president himself Speyer claimed not to have been informed of the dealings between Kuhn, Loeb and Hollander and implied that Hollander may have tilted the business to an investment house that contained his friends Hollander, of course, rejected any suggestion of favoritism and submitted his own history of the loan According to Hollander, William Salomon and Company, with Speyer as a partner, had a refund-

ing plan under consideration when Kuhn, Loeb submitted terms that

were “astonishingly favorable” to the Dominicans, far better than any- thing Salomon and Speyer had ever considered.”

The dispute illustrates the ease with which divergent histories of loan negotiations could be constructed and then breed feuds and charges of

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se-58 Financial Missionaries to the World The Roosevelt Corollary and the Dominican Model of 1905 59

lect investment bankers in future controlled-loan situations? How might officials avoid charges of insider dealing? Under the Taft administration, when dollar diplomacy became an official and highly-touted policy, the

State Department would undertake a policy review and try to devise

procedures to select banker's proposals competitively and impartially Other dilemmas arose out of corporatist cooperation What were the implications of the government's playing a principal role in bringing bankers and bankrupt governments together and in appointing receiver-

ship officials to service the debt? By becoming an international bill col-

lector, did the executive branch itself become a servant of private lenders? Was it also obliged to insure economic and political stability in the borrowing countries? Would military obligations follow? As dollar diplomacy expanded during the next two decades, these questions would become more and more troublesome A Washington Post editorial in 1905 anticipated later critiques in warning that “the proposition that a government has a right to tax its subjects to provide ships of war and fighting men to collect private debts is so self-evidently wrong that the sim- plest statement of it exposes its abhorrent character.”75

President Roosevelt entered the Dominican relationship with the idea

that a receivership would prevent, not be a prelude to, military involve-

ment there But as policymakers earnestly committed themselves to making the receivership work, they turned the Dominican Republic into a symbol of honor for the United States and the Monroe Doctrine If the receivership was threatened by debt or disorder, so much prestige was at stake that policymakers had little choice but to bite off more and more of the country’s sovereignty, intervening in ever broader ways to address the problems Stability in Dominican finance and politics became an overrid- ing test of civilizing virtues

Another source of friction that first surfaced in the Dominican Repub- lic involved disputes over the powers of the receivership The convention of 1907 set up a long-term U.S administrative presence in the of- fices of the Receiver General and some subordinate employees William E Pulliam, previously in the customs service of the Philippines, became

the Receiver General, his prior experience highlighting the link between

overt colonialism and the newer technique of dollar diplomacy U.S officials expected the Dominican government to behave gratefully and

subserviently; their belief in the white man’s civilizing mission led poli-

cymakers to see themselves as natural organizers of people who were

naturally followers Dominican leaders, for their part, had their own

agendas, which included manipulating great powers and foreign economic interests to their own best advantage Dominicans expected to maintain their sovereignty by restricting foreign decision-making narrowly to the realm of customs collection Almost immediately, disagreements arose over the boundaries of the power held by Pulliam and his associates.’ As U.S officials pressed for wider administrative control in the coming years, these disagreements undermined any harmony in Do-

minican-United States relations, as they would in other cases of dollar

diplomacy

In the early years of the 1907 agreement, however, the self-confident architects of the Dominican model suppressed the contradictions To them, the Dominican model seemed to shine as an accomplishment only slightly less remarkable than that of severing the continent across the Isthmus of Panama If the Panama Canal symbolized their dream of a

growing empire of commerce and well-ordered amity, the Dominican

model seemed a practical step to the dream’s fulfillment With U.S ex- petts controlling the customs houses, they claimed, Dominican revolu- tionaries could no longer seize a port and use customs revenue to finance a revolt against the central government Internal disorder initially sub- sided, as the U.S.-backed government successfully crushed its oppo-

nents Moreover, trade rose steadily and receipts from the Dominican

customs houses shot up dramatically A nation burdened by bankruptcy and default seemed to acquire, through U.S supervision, the steady habits of thrift and regular payment of bills U.S direct investment in the Dominican Republic also soared Before 1905, such investments had

been small; under the umbrella of the receivership, U.S.-owned sugar

and transportation interests assumed an ever greater share of productive

activity in the Dominican Republic.”7 Advantages to U.S importers and sugar exporters became embedded in Dominican tax and tariff structures Legislation such as the Agricultural Concessions Law of 1911 awarded incentives to U.S sugar producers.”® Dollar diplomacy here, as in some subsequent cases, spearheaded a broader economic presence that included rising levels of direct U.S investment and trade.”9

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colonialism along with a commitment to stabilize and provide manly uplift to the darker-skinned peoples of nations touching the Caribbean In the Dominican Republic between 1905 and 1907 the United States

instituted financial controls without, at first, incurring the burdens or

backlash associated with formal colonialism The Dominican Republic’s receivership, fiscal protectorate, or controlled loan (any of these terms were and may be used) represented an attempt by policymakers to find an alternative to colonialism that would still institute the supervision they deemed necessary for fiscal and social reform

With this Dominican model before them, the new administration of

William Howard Taft and his Secretary of State Philander Knox laid plans to extend dollar diplomacy In 1911, the assassination of the Dominican president touched off mounting discontent and renewed revolution in

the Dominican countryside, but President Taft declared that the U.S

action had “cured almost century-old evils.” Secretary of State Knox in 1912 proclaimed that the Dominican Republic was “a bright example to all the Americas and to the world.”80

3

The Changing Forms of Controlled Loans under Taft and Wilson

From 1909 to 1912, the administration of William Howard Taft

turned the idea of financial oversight (as put into practice in the Domini- can Republic) into the cornerstone of its foreign policy Some years earlier Taft had opposed acquisition of the Philippines’as a colony, but later he established an impressive reputation as its colonial governor His close involvement with governance in the protectorates of Panama and Cuba added to his expertise in the management of dependencies Build- ing from these experiences and from the Dominican success story, Taft promised voters that he would spread stability and progress into critical areas by substituting “dollars for bullets.” The policy, called dollar diplomacy, would extend U.S influence by using bankers rather than Ma-

rines.}

Taft envisioned a very specific process for dollar diplomacy This included introducing into strategic countries a stable, gold-based currency regulated by a central bank with reserves safely deposited in New York, and using reform of customs collection to guide these governments toward a reliable credit record with steady debt service Such reforms would be introduced by the extension of U.S bank loans that were conditional on the borrower's acceptance of U.S financial advisers As Taft explained: “The United States has been glad to encourage and support U.S bankers who were willing to lend a helping hand to the financial rehabilitation of such countries because this financial rehabilitation and the protection of their customhouses from being the prey of would-

be dictators would remove at one stroke the menace of foreign creditors

and the menace of revolutionary disorder.”? In Taft's view, his dollar

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diplomacy would spread civilization by rehabilitating both financial and political structures That the overall domestic welfare of a country “will be assured by a sound reorganization of its fiscal system is a self-evident

proposition,” Taft proclaimed.3

Dollar diplomacy was not synonymous with all U.S bank lending Most international lending by U.S banks was flowing into countries deemed economically stable enough to attract loans simply through the credit-worthiness of their government, or into countries offering specific concessions that would generate revenue These ordinary loans, ex-

tended to European countries, Canada, Argentina, Brazil, Australia, and

Japan, had little direct connection to governmental goals and included no supervisory conditions Dollar diplomacy, by contrast, introduced a small but politically significant category of “controlled loans.”* The policy initially aimed primarily at getting U.S bankers to reschedule the debts of Caribbean and Central American countries, fulfilling the Roosevelt Corollary by removing the influence of European bond-hold-

ers These loans were to be vehicles of the kind of economic, political, and social reconstruction envisioned and articulated by Conant, Jenks,

and Kemmerer

Although Taft’s administration continued Roosevelt's emphasis on securing America’s position in the special region around the Caribbean, it also expanded its sights globally Francis Huntington Wilson, the first assistant secretary of state, thoroughly revamped the organization of the '

State Department, enlarging staff and creating new regional divisions—

Far Eastern, Latin American, Western Europe, and Near East—to en-

hance specialization and effectiveness He also reorganized the Depart- ment’s informational systems to handle a larger volume of reports and correspondence These administrative changes, which would be further refined by President Woodrow Wilson, concentrated expertise and in- fused foreign policy with greater activism and more global scope.5

Extending the Dominican Model

The attempt to use “American capital [as] the instrumentality to secure financial stability” became an especially high priority in the Carib- bean area as the Panama Canal neared completion.® Knox appointed

Thomas Dawson, architect of the Dominican agreements, as head of the

new Latin American Division in the State Department and developed

The Changing Forms of Controlled Loans under Taft and Wilson 63

plans for an activist policy Canal diplomacy made policymakers increasingly concerned about European interference in debt collection and also more eager to build a legal rationale for their own potential military interventions In 1909 and 1910 the Solicitor in the State Department discussed the problem the United States would have with finding a legal way to intervene in Caribbean countries not covered by a Cuban-style Platt amendment Customs-receivership conventions, Dominican-style, would provide the kind of legal arrangement that the Taft administration suspected an activist Caribbean diplomacy might require.’

Secretary of State Philander Knox, a corporation lawyer with close ties to the investment banking community, argued that a strong financial presence would actually decrease the need for military intervention He explained that the United States had been sending forces several times a year to protect U.S lives and property threatened in Central American revolutions Because the main object of these revolutions was to gain control of the money from customs duties, foreign supervision of the customs houses would take away the motive for rebellion The “enormous expense” of military intervention, which he estimated at over a million dollars a year, would be saved once the United States had secured

the customs duties In pressing Congress to pass another Dominican- modeled convention, Knox argued: “Without the convention we must,

when unfortunately necessary, intervene With the convention intervention will probably be rendered unnecessary.”®

True stability is best-established not by military but by economic and social forces A certain area of Central America has been notoriously wracked by revolution The treasuries of some of the most backward republics have at times virtually succumbed under the weight of exor- bitant foreign loans, which, with improvident financial administration, have sunk them deep into debt The problem of good government is inextricably interwoven with that of economic prosperity and sound finance; financial stability contributes perhaps more than any other one factor to political stability

This analysis, which accompanied the Dominican deal, provided the

language of policymaking for years to come It rested on what policy-

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entre-64 Financial Missionaries to the World

preneurs (that is, people who resembled U.S policymakers themselves)

was tiny or nonexistent, two conclusions followed: that effective self- government was impossible without foreign intervention, and that most of the people constituted “masses” whose only political function was to provide mindless support for self-serving factional leaders Politics, not entrepreneurship, was the avenue to wealth among the narrow elite in

these countries, the analysis went, and political turmoil and repetitious

coups would continue until an outside force removed the economic

spoils of holding political power The civilizing task involved placing revenue collection and budgetary oversight in the hands of expert out-

siders so that local elites might turn to productive endeavors and no

longer agitate the masses into fighting their factional disputes Within this analysis, nationalism and popular political movements became automatically suspect; opposition to U.S intervention was cast as the work of grafters or “bandits.”10

Taft's embrace of dollar diplomacy opened professional opportunities for the new foreign financial advisers Conant celebrated Taft’s election, hailing him as a great administrator and proclaiming that his work in the Philippines had been accomplished with “a rapidity and skill unrivaled probably in history except by the constructive labors of Augustus and the first Napoleon.”!! A few months later, while working with Speyer and Company to put together some bond issues on the Dominican model,

Conant arranged a direct meeting with Knox to enlist the secretary's

“moral support” for a systematic program linking refunding loans to currency reforms in many countries He also explained to Knox how a gold-exchange standard, put in place as part of a loan-receivership plan, could be very profitable for both the fiscal protectorate and the bankers He cited the growth of the Philippine’s Gold Standard Fund to illus-

trate.!2

Conant formalized his proposal in a lengthy document, “Plans for Pro- moting Monetary Reform.” According to it, the U.S government should suggest that countries engaged in loan negotiations with U.S bankers hire a financial expert (such as Conant himself) to reorganize their currencies The profits from seigniorage, he proposed, should be split fifty- fifty between the bankers and the country, the country paying the financial expert out of its profits Thomas Dawson deemed the plan “admirable” and sent it to others in the State Department and to the

Nicaraguan Minister of Finance.3 Between 1909 and 1913 Conant pro-

moted loan and currency reform negotiations (many of which were never completed) for Cuba, China, Liberia, Bolivia, Guatemala, Hondu-

‘ras, Costa Rica, and Nicaragua He believed that the profits to be made from seigniorage on gold-standard financial rehabilitation, linked to loan-receivership plans, would make dollar diplomacy extremely attrac- tive to all sides involved

Banking leaders also organized to help fulfill the objectives of dollar diplomacy J P Morgan, National City, Kuhn, Loeb, and First National, though competitors in some loans, decided to collaborate on projects encouraged by the State Department During June and July of 1909 these four banks joined together in a consortium to work on loans to China and also formed a North American Group for considering new financial propositions in Latin America Knox applauded these steps and promised the government's full support In joining together, these banks sought to outmaneuver their competitor, Speyer and Company, which then repeatedly charged governmental favoritism toward the consorted banks.14

Honduras became the first target for the “self-evident” uplift of Do- minican-style dollar diplomacy This country, according to Taft, was a

“hopeless debtor,” and the State Department indicated “the strongest

possible desire to contribute toward bringing about so satisfactory a result as that attained in Santo Domingo.”!5 Honduras had defaulted on large British loans since 1873, and Taft and Knox saw the country as another candidate for a private bank loan and customs receivership convention that would pay off British creditors and bring financial, and thus political, stability.}6 In the margin of a memo proposing a loan-for-supervision arrangement, Robert Bacon (who served as secretary of state for a short time in 1909) wrote, “this is the keynote of the solution of our whole Caribbean problem.”!”

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De-66 Financial Missionaries to the World

partment hired Charles Conant to work with the Morgan officers and

the government of Honduras to assess the financial details and put to-

gether the deal Although J P Morgan, Jr., the partner arranging the loan,

doubted that Honduras would ever accept a customs receivership, he

spent over two and one-half years on the deal because of Knox's personal urging

In January 1911, a loan and convention package for Honduras was ready As in the Dominican case, the convention committed the U.S

government to establishing a customs receivership that would collect

revenues and remit payments on the accompanying private loan ex-

tended by the North American Group (also providing a lever for legal

intervention, if necessary) This Knox-Paredes convention was submit-

ted to the Senate Foreign Relations Committee along with a copy of the loan contract, Conant'’s professional stamp of approval, the positive tes- timony of Morgan's representative, and a strong presidential endorse- ment.'® The assistant secretary of state wrote, “The Secretary regards this

as a test case of utmost importance because the principle we seek to act upon in Honduras is one we are bound to have to resort to in still

other cases.”!9 Those “other cases” were already on the drawing boards,

with Nicaragua taking top priority

U.S companies already dominated the life of Nicaragua's east coast, an area that had been a preserve of the Mosquito Indians and under British protection during the first half of the nineteenth century Taking advantage of generous concessions, U.S entrepreneurs had established huge banana plantations and by 1893 controlled over 90 percent of the region’s business and wealth U.S interests in the region were centered at Bluefields, a port that linked eastern Nicaragua more closely with foreign countries than with Managua In 1894, the strong Liberal President José Santos Zelaya formally incorporated the eastern area into the Nicaraguan state, ending Britain’s role and threatening U.S concessionaires

Zelaya’s nationalistic program aimed to integrate the country econom-

ically and politically under his rule by extending transportation links from Managua to the Atlantic, imposing an export tax on bananas, and

canceling a large U.S mahogany concession The president also appeared to be approaching other powers to sell rights to build a rival canal As Zelaya extended and centralized his power, U.S interests in eastern Nica- ragua and officials in the Taft administration denounced his rule and

provided moral and material support to an eastern-based revolution

against him Backing the insurgency with gunboats, the State Depart- ment made it clear that the United States wanted to establish a receivership in Nicaragua on the Dominican model and also hoped to obtain rights for a second canal route through Nicaragua.”

In 1910 Zelaya fled the country, and the next year Adolfo Diaz, a corporate secretary for a U.S mining company in Bluefields, seized the presidency after a bout of factional political fighting (Secretary of State Knox's law firm had acted as counsel for the U.S firm.)2! The Taft ad-

ministration quickly dispatched Thomas Dawson as a special agent to Managua to gain the new government's acceptance of a customs receiver-

ship and a U.S.-controlled commission to judge and award claims against the Nicaraguan government In a process resembling the Dominican

pattern, the State Department also arranged for U.S bankers (Brown

Brothers and Company and J and W Seligman and Company) to send a professional financial expert, and for a U.S battleship to arrive on the scene for “moral effect.”22

Unlike the Dominican Republic or Honduras, however, Nicaragua was neither bankrupt nor in default This proposed loan would not pay off foreign creditors but compensate leading Conservative party members like Diaz and Emiliano Chamorro for the costs of waging the rebellion against Zelaya Yet it would bind Nicaragua and its elite into the dependency status envisioned by dollar diplomacy Because there was no prior default, bankers would have extended a loan without any customs re-

ceivership provision, but the State Department insisted that the bank

loan be conditioned on a receivership as a matter of policy.?3 The sub-

sequent Dawson agreements proposing a loan, a United States-run cus-

toms receivership, and a commission to adjudicate past claims against the Nicaraguan government were widely opposed in Nicaragua The U.S minister there reported that “an overwhelming majority of Nicaraguans” were “antagonistic to the United States.”2+ Diaz, beholden to the United States, nonetheless supported the loan and the Knox-Castrillo conven-

tion, which went to the Senate to join the identical Honduran convention also awaiting action.*5

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and approved by the president of the United States The practical difference was insignificant, but the public presentation in all countries may have looked better.® The two conventions were clearly linked and symbolized Taft's future plans for using loan-receivership arrangements to extend U.S influence into many areas of the world A similar plan for Liberia was nearly ready; Guatemala was negotiating with Speyer, J W

Seligman, and Minor Keith of United Fruit; and China seemed another

likely candidate.’

The Honduran convention quickly hit troubled waters In Honduras,

political opposition to the convention and loan was substantial The $10

million loan not only carried a huge 12 point profit spread for the bankers, but it was to go mainly to pay the claims of British creditors and Washington Valentine and also to extend the railroad upon which Valen- tine wanted to ship his company’s fruit A rival fruit company headed by

Samuel Zemurray, a banana dealer from Mobile, financially supported a

Honduran opposition movement (headed by former President Manuel Bonilla), which launched an armed revolt in early 1911 Zemurray, who

wanted to maintain his own predominant influence in Honduras and

enjoy a monopoly for his fruit company, feared that a U.S.-run fiscal

agency would oppose the exclusive concession he sought from the Hon- duran government.?® The Honduran negotiator refused to sign the loan

contract In its initial vote, the Honduran Congress resoundingly defeated the convention and denounced it as an assault upon national sovereignty and independence.*? Then Bonilla’s faction came to power At that point, the State Department hoped that a new set of bankers associated with Zemurray would effect the loan-receivership plan, but

failure of the U.S Congress to act on the convention stalled any new loan negotiations.39

In the United States, congressional critics also balked at ratifying the conventions Drawing on antibanking arguments, they claimed that such a controlled loan might lead to wider political and even military commitments They expressed distrust of executive branch power, especially when allied with large banks A majority on the Senate Foreign Relations

Committee voted to report the Honduran convention favorably to the

Senate, but every Democrat voted against it, and Senate leaders saw so little chance of passage that they did not even call it up for further action

In February 1912, J R Morgan withdrew its participation, and its part-

ners in England commiserated: “We fully realize how wearisome it must have been for you to spend so much time over negotiations which failed to mature owing to the actions of governments.”3! The administration undertook a major lobbying effort, in which Knox made a goodwill visit to Central America in the summer of 1912 to assure Central Americans that the United States wanted no territory but only wished to improve fiscal administration, and President Taft himself sent lengthy letters to fifty-seven senators But the Foreign Relations Committee still dead- locked over the issue, and hope for ratification died completely.*?

After Congress blocked the conventions for receiverships for Hondu- ras and Nicaragua, similar loan-receivership arrangements that the State Department had been putting together for Guatemala and Liberia lan- guished Guatemalan President Manuel Estrada Cabrera resisted pressure to cooperate with any such plan The proposal for Liberia rested in limbo

A loan/convention for Liberia was under consideration because of that country’s unique relationship with the United States In 1816 the Ameri-

can Colonization Society had established a settlement of ex-slaves, called

it Monrovia after President Monroe, and prepared an early constitution As the African-American newcomers expanded their settlement along the west coast, the Liberian government changed from being the ward of the Colonization Society into an independent state, issuing in 1847 a declaration of independence and a constitution modeled on that of the United States.33 The descendants of these founders constituted the governing elite in Liberia, estimated to number ten thousand by the early twentieth century These Americo-Liberians were culturally alienated from, yet presumed to govern, the native communities, numbering 1.5 million, which resided within the borders of the new state They also had a history of indebtedness to English creditors, and assorted British economic and military advisers had exercised some power in Monrovia in

the late nineteenth century

At the same time that Theodore Roosevelt's administration was insti-

tuting a receivership in the Dominican Republic, the Liberian government faced analogous money problems It was struggling to maintain

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